Greenie: How He Dissembles; We Report, You Decide

He whines:

After nearly two decades as chairman of the Federal Reserve, Alan Greenspan wants to solidify his standing in history.

In an interview timed with the release of his memoir Monday, Mr. Greenspan sought to distance himself from the economic policies of President Bush and refute critics who say his policies at the Fed contributed to the housing bubble and bust that is now roiling the economy.

Mr. Greenspan unleashed bottled-up frustration about President Bush, Vice President Dick Cheney and Republican leaders in Congress who, he contends, put politics ahead of Republican goals like fiscal discipline and lower government spending.

“I’m just very disappointed,” he said glumly, as he sat in his living room. “Smaller government, lower spending, lower taxes, less regulation — they had the resources to do it, they had the knowledge to do it, they had the political majorities to do it. And they didn’t.”

In the end, he said, “political control trumped policy, and they achieved neither political control nor policy.”

Mr. Greenspan, a lifelong Republican who presided over the longest sustained economic expansion in American history, sounded frustrated that neither a Republican White House nor Republican leaders in Congress were heeding his quiet pleas for greater fiscal discipline.

Mr. Greenspan said he met frequently at the White House with President Bush and Vice President Cheney, but his enthusiasm for the new administration cooled as he discovered that Mr. Bush ignored much of his advice.

In his first term, Mr. Bush would rarely let a week go by without visiting a small business or a camera-friendly factory to extol entrepreneurship or the importance of tax cuts. But back at the White House, Mr. Greenspan got virtually no response to his advice that the president veto spending bills. Mr. Greenspan said he was told his recommendations would be “taken under advisement.”

His observations are in line with those of others who engaged Mr. Bush frequently, including the former Treasury secretary, Paul H. O’Neill, who was fired in December 2002. After the Sept. 11 attacks, they said, Mr. Bush would become animated and even passionate about counterterrorism or the war in Iraq. But they said that broader economic discussions bored him, unless he could take them to the factory floor.

Mr. Greenspan has always been acutely aware of the explosive impact that his public comments could have in both political and economic circles. He never criticized specific Republican or Democratic politicians while he was at the Federal Reserve, even when he was under attack from one side or the other.

But in the interview, Mr. Greenspan seemed dismayed that leaders in his own party paid little heed to his pleas for spending restraint and for “pay-as-you-go” rules that would require Congress to offset the cost of new tax cuts with savings elsewhere. He repeated the conclusion about the Republicans’ loss of Congressional control in the 2006 elections: “They deserved to lose.”

Mr. Greenspan also spelled out his own views about the war in Iraq: he supported the invasion, he says, not because Saddam Hussein might have had weapons of mass destruction, but because Saddam had shown a clear desire to capture the Middle East’s oil fields.

“I supported taking out Saddam, because he was moving inexorably toward taking the world’s oil resources,” he said. “Iraq was a far greater threat than Iran to the world scene.”

But Mr. Greenspan also seemed intent on protecting his reputation in history about a debacle that is a focus of his successors at the Federal Reserve: the housing bubble that peaked while he was chairman of the Fed and the bust that now threatens to tip the overall economy into a recession.

Though he says little about the issue in his book, “The Age of Turbulence: Adventures in a New World,” (Penguin Press, $35) Mr. Greenspan sought to staunchly refute charges that he contributed to the housing bubble by cutting interest rates from 2001 until 2004 and by making little effort to regulate the explosion of risky new mortgages.

On Tuesday, after a month of almost unremitting turmoil in financial markets, Ben S. Bernanke, Mr. Greenspan’s successor as Fed chairman, will preside over a crucial Fed policy meeting to decide whether and how much to lower interest rates in order to prevent a broader economic downturn.

Mr. Greenspan, 81, acknowledged that the housing frenzy had been pumped up in part because of very low interest rates and in part because of the growing willingness of mortgage lenders to underwrite dubious and often fraudulent loans that were much bigger than many borrowers could realistically afford.

But he said it was a mistake to blame the Fed, which needed to reduce interest rates in order to fend off the recession of 2001 and what many economists thought was a real risk of the kind of “deflation,” an across-the-board drop in consumer prices, that had plagued Japan.

John B. Taylor, a professor of economics at Stanford University and a former under secretary of the Treasury under President Bush, recently argued that the Fed’s rate cuts after 2001 appeared to have exaggerated both the housing boom and bust.

“There has been a bit of historical revisionism going on,” Mr. Greenspan grumbled. The real force behind soaring real estate prices, he said, was a global one: a drop in worldwide inflation and interest rates, in part because of the end of the Cold War and the rise of China as a manufacturing colossus.

“The housing boom is not an American phenomenon — it’s a worldwide phenomenon,” Mr. Greenspan said. “The evidence is quite overwhelming that what we are going through is a consequence of the fall of the Soviet Union and the shift of a billion workers from central planning in to the labor market.”

The United States was only one of 40 countries that experience a housing boom after 2000, he said, and all of the booms were driven in part by low interest rates.

“If you line up all the major developed countries and all the developing countries, leaving out the Zimbabwes, inflation rates were all in single digits. This is utterly unprecedented, there is no history like this. And the consequence was a fairly dramatic decline in real interest rates, which created dramatic housing price increases around the world.”

He's nailed by Prof. Krugman:

When President Bush first took office, it seemed unlikely that he would succeed in getting his proposed tax cuts enacted. The questionable nature of his installation in the White House seemed to leave him in a weak political position, while the Senate was evenly balanced between the parties. It was hard to see how a huge, controversial tax cut, which delivered most of its benefits to a wealthy elite, could get through Congress.

Then Alan Greenspan, the chairman of the Federal Reserve, testified before the Senate Budget Committee.

Until then Mr. Greenspan had presented himself as the voice of fiscal responsibility, warning the Clinton administration not to endanger its hard-won budget surpluses. But now Republicans held the White House, and the Greenspan who appeared before the Budget Committee was a very different man.

Suddenly, his greatest concern — the “emerging key fiscal policy need,” he told Congress — was to avert the threat that the federal government might actually pay off all its debt. To avoid this awful outcome, he advocated tax cuts. And the floodgates were opened.

As it turns out, Mr. Greenspan’s fears that the federal government would quickly pay off its debt were, shall we say, exaggerated. And Mr. Greenspan has just published a book in which he castigates the Bush administration for its fiscal irresponsibility.

Well, I’m sorry, but that criticism comes six years late and a trillion dollars short.

Mr. Greenspan now says that he didn’t mean to give the Bush tax cuts a green light, and that he was surprised at the political reaction to his remarks. There were, indeed, rumors at the time — which Mr. Greenspan now says were true — that the Fed chairman was upset about the response to his initial statement.

But the fact is that if Mr. Greenspan wasn’t intending to lend crucial support to the Bush tax cuts, he had ample opportunity to set the record straight when it could have made a difference.

His first big chance to clarify himself came a few weeks after that initial testimony, when he appeared before the Senate Committee on Banking, Housing and Urban Affairs.

Here’s what I wrote following that appearance: “Mr. Greenspan’s performance yesterday, in his first official testimony since he let the genie out of the bottle, was a profile in cowardice. Again and again he was offered the opportunity to say something that would help rein in runaway tax-cutting; each time he evaded the question, often replying by reading from his own previous testimony. He declared once again that he was speaking only for himself, thus granting himself leeway to pronounce on subjects far afield of his role as Federal Reserve chairman. But when pressed on the crucial question of whether the huge tax cuts that now seem inevitable are too large, he said it was inappropriate for him to comment on particular proposals.

“In short, Mr. Greenspan defined the rules of the game in a way that allows him to intervene as he likes in the political debate, but to retreat behind the veil of his office whenever anyone tries to hold him accountable for the results of those interventions.”

I received an irate phone call from Mr. Greenspan after that article, in which he demanded to know what he had said that was wrong. In his book, he claims that Robert Rubin, the former Treasury secretary, was stumped by that question. That’s hard to believe, because I certainly wasn’t: Mr. Greenspan’s argument for tax cuts was contorted and in places self-contradictory, not to mention based on budget projections that everyone knew, even then, were wildly overoptimistic.

If anyone had doubts about Mr. Greenspan’s determination not to inconvenience the Bush administration, those doubts were resolved two years later, when the administration proposed another round of tax cuts, even though the budget was now deep in deficit. And guess what? The former high priest of fiscal responsibility did not object.

And in 2004 he expressed support for making the Bush tax cuts permanent — remember, these are the tax cuts he now says he didn’t endorse — and argued that the budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.

In retrospect, Mr. Greenspan’s moral collapse in 2001 was a portent. It foreshadowed the way many people in the foreign policy community would put their critical faculties on hold and support the invasion of Iraq, despite ample evidence that it was a really bad idea.

And like enthusiastic war supporters who have started describing themselves as war critics now that the Iraq venture has gone wrong, Mr. Greenspan has started portraying himself as a critic of administration fiscal irresponsibility now that President Bush has become deeply unpopular and Democrats control Congress.