What Greenspan won't admit about deficit
ALAN GREENSPAN is a gold-plated hypocrite. Last week the Federal Reserve chairman, speaking at a conference in Chicago, warned that the endless federal deficits had become "a significant obstacle to long-term security because the budget deficit is not subject to correction by market forces." What does Greenspan think caused the deficit -- sunspots? He doesn't deign to say. But everyone else knows. While increased military spending is part of the story, the huge imbalances that rightly worry the Fed chairman are mainly the predictable result of President Bush's immense tax cuts.
At the time of their enactment, not only did Greenspan fail to warn against the danger; he even gave tax cuts his support. Greenspan's early ideological moorings as a far-right Republican accolyte of Ayn Rand continued to trump his current responsibilities as chief central banker.
It's one thing to deliberately run a deficit during a recession. It's quite another to deliberately blow a huge hole in the government's revenue structure. Greenspan should surely know the difference. But like Bush, Greenspan uses the immense deficits as a rationale to keep cutting social outlays.
The deficits are now projected at $400 billion this year and at comparably destructive levels for the indefinite future. The tax cuts are responsible for more than $3 trillion in long-term revenue losses over 10 years. And Greenspan hasn't even spoken out against the president's campaign to make the cuts permanent.
Just imagine the outcry from Greenspan, Wall Street, and the Republican Party if these deficits had been the result of social spending rather than tax cuts for America's wealthiest. For half of the cost of the projected deficits -- $200 billion a year -- we could have universal, high-quality child care and health insurance for all Americans. Think of that.
But if some Democratic president had managed to persuade Congress to enact such a program, the right would be going nuts at the fiscal irresponsibility. Clearly the right's fiscal ethics are entirely situational. If deficits are caused by tax cuts for corporations and the rich, well, this is a manageable problem that can be solved by reduced social spending. But if deficits result from spending, Wall Street and the right would have us believe the economy is about to collapse.
Indeed, if the gold medal for hypocrisy goes to Greenspan, Wall Street deficit hawks get the silver medal. Remember the Concord Coalition -- that bipartisan group of worthies concerned about federal deficits? It's still there, and a few of its members are actually principled conservatives. You just don't hear as much from it when the deficits are Bush's.
The one recent president, of course, who took deficits seriously was Bill Clinton. Presidents Reagan, Bush I, and Bush II have all been all fiscally reckless. Yet somehow the conservative press would have us believe that it's Democrats who have to live down a reputation of being deficit-happy.
Other notable situational ethicists who get bronze awards for hypocrisy are deficit hawks in the administration. The White House economic policy czar, Steve Friedman, was a prominent investment banker and one of Wall Street's leading critics of fiscal imprudence. Now that he's on the inside, we haven't heard so much as a bleat from him. If he's advising Bush to resist tax cutting for the larger good of the economy, he certainly is having no effect. One wonders how Friedman can look in the mirror.
Likewise Greg Mankiw, the Harvard economist whose best-selling textbook warns that prolonged deficits will raise interest rates and slow economic growth. It is a tradition that eminent economists punch their career tickets by doing a prestigious stint at the Council of Economic Advisers, which Mankiw chairs for Bush. But at what cost?
It would be one thing if Mankiw were a pure technocrat who stayed in the back rooms and crunched numbers. But Mankiw's appointment is a political one, and part of his job is to go out front and vouch for an administration and policies that he knows are deplorable.
What gets lost is the fact that taxing and spending involve political choices. One path involves slightly higher tax rates on America's most privileged in order to pay for decent public services. The other path allows the deserving rich, such as the children of the wealthiest 2 percent of families, to forgo taxation at the expense of needed social outlay. This is the real national choice that is cynically obscured by the running up of endless deficits.
Robert Kuttner's is co-editor of The American Prospect. His column appears regularly in the Globe.
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