Saturday, September 15, 2007

Greenspan Hatin' On Bush

Former Federal Reserve Chairman Alan Greenspan is coming out with one of those memoirs big enough to prop open the gates of Fort Knox. In it, according to a Washington Post report today, he loves Clinton and hates Bush. The reason, in Bob Woodward's summary, is that Clinton was a deficit slayer and Bush a deficit maker. Woodward's overview uses the standard categories:
Greenspan says, " 'Deficits don't matter,' to my chagrin became part of the Republicans' rhetoric."

He argues that "deficits must matter" and that uncontrolled government spending and borrowing can produce high inflation "and economic devastation."
While Greenspan regards the Bush Administration as shallow, thoughtless, irresponsible, "dysfunctional," and destructive, he heaps praise on Clinton.

[Greenspan} calls Clinton a "risk taker" who had shown a "preference for dealing in facts," and presents Clinton and himself almost as soul mates. "Here was a fellow information hound. . . . We both read books and were curious and thoughtful about the world. . . . I never ceased to be surprised by his fascination with economic detail: the effect of Canadian lumber on housing prices and inflation. . . . He had an eye for the big picture too."

During Clinton's first weeks as president, Greenspan went to the Oval Office and explained the danger of not confronting the federal deficit. Unless the deficits were cut, there could be "a financial crisis," Greenspan told the president. "The hard truth was that Reagan had borrowed from Clinton, and Clinton was having to pay it back. I was impressed that he did not seem to be trying to fudge reality to the extent politicians ordinarily do. He was forcing himself to live in the real world."
Overall, Greenspan's theme is the greatness of "free-market capitalism" and his own insights into this as a "libertarian Republican."

Points worth noting:
  • Bush's enemies hate him, but his friends hate him too. He may have alienated a larger portion of his party's elite supporters than any American leader in modern history.
  • The Bush Administration's intellectual emptiness and dishonesty drives everyone nuts. The sheer incoherence has made former moderates, like free-trader Paul Krugman, into stone enemies, but it has done the same to thinking conservatives.
  • Greenspan is honest enough to note that Reagan created a deficit mess and only Clinton cleaned it up.
  • Is he honest enough to admit that Republican prosperity depends on deficits - which pump up consumption? I doubt it, since that would conflict with his axiom that prosperity flows directly from the absence of government. (This hard-right Ayn Randian / Barry Goldwater principle became respectable during the Reagan era.)
  • the anti-deficit religion obscures two kinds of deficits. One is the old Keynesian "investment" deficit, in which the deficit is a byproduct of investing in public services and subsidizing new or larger businesses; the other is the operating deficit (ironically very Republican), in which tax cuts lead to failure to cover basic government operations, never mind building new or improved ones. Nobody likes the latter kind except in emergencies; the former, for the sake of economic and social development, are good, and can be paid back with the added value they create. By confusing the two, Republicans have destroyed support for social investment, making it look like a terrible burden on working people.
  • Greenspan's praise should remind us that Bill Clinton was a conservative president. Clinton used the anti-deficit religion not simply to reduce the deficit (good as such) but to abandon "investment" deficits, and the government's social development role.
  • there's a contradiction at the heart of Greenspan's views, embodied by the fact that he spent two decades running a monopolistic, quasi-authoritarian government institution that continuously managed and support his free markets. Will conservatives ever admit markets depend on government?
  • Simple Schumpter - the idea of "creative destruction" - remains largely uncriticized in Washington and on Wall Street. We still can't even ask the question whether it was bad to get rid of most of the great manufacturing industries of the twentieth century - we always already know the answer.
Greenspan's memoir sounds like a compendium of the Old School that brought us the 1980s and 1990s. But how much will last-century libertarianism really help us with the future?

P.S. 9/17: See Paul Krugman's Greenspan bashing column today: Krugman recalls Greenspan's support of the Bush tax cuts he now calls irresponsible, and reads him as yet another Bushite abandoning the loser administration he had a great role in shaping.

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