Greenspan’s Notorious 2001 Congressional Testimony

After defending

Alan Greenspan’s monetary policy, Brad DeLong now steps

up to the plate to defend his notorious 2001 testimony in favor of the Bush

Administration’s sweeping tax cuts. If you actually read the testimony,

he says, it’s full of hedges and cautions and triggers and whatnot – it’s

far from the green light that it was painted as.

Greenspan even says that Bob Rubin found nothing objectionable in the testimony

per se:

Bob Rubin phoned…. With a big tax cut, said Bob, "the risk is, you

lose the fiscal discipline."…

"Bob, where in my testimony do you disagree?"

There was silence. Finally he replied, "The issue isn’t so much what

you’re saying. It’s how it’s going to be perceived."

"I cant be in charge of people’s perceptions," I responded wearily.

"I don’t function that way. I can’t function that way."

Greenspan goes on to say that he’d "have given the same testimony if Al

Gore had been president". But you’ll excuse me if I’m skeptical of that


For one thing, by Greenspan’s own admission he was full of optimism at the

beginning of 2001 that George W Bush would recreate the Ford Administration

(Cheney, Rumsfeld, O’Neill, Greenspan himself). He genuinely believed that Bush

was a fiscal conservative who would protect budget surpluses – and, as

a lifelong libertarian Republican, he was excited to be able to sign on to the

Bush agenda.

But more to the point, how can we take seriously Greenspan’s assertion that

he would have given the same testimony under a Gore administration, given that

he never hinted at anything similar during the Clinton administration? Here’s

some of the Greenspan testimony:

Continuing to run surpluses beyond the point at which we reach zero or near-zero

federal debt brings to center stage the critical longer-term fiscal policy

issue of whether the federal government should accumulate large quantities

of private (more technically nonfederal) assets. At zero debt, the continuing

unified budget surpluses currently projected imply a major accumulation of

private assets by the federal government. This development should factor materially

into the policies you and the Administration choose to pursue.

In January 2001, it seems, the prospect of the goverment paying down the federal

debt to zero is and should be at "center stage", and "should

factor materially" into the decision whether or not to cut taxes. But if

that was really the case, how come we heard almost nothing along such lines

from Greenspan in 2000? And in any case, wasn’t Greenspan’s job meant to be

monetary policy, not fiscal policy? I suspect that had Gore been president,

a less ideologically excited Greenspan would have been much more circumspect

about treading outside of his economics-and-monetary-policy domain to advise

the Congress that they should cut taxes. After all, even central bankers are


This entry was posted in fiscal and monetary policy. Bookmark the permalink.