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Why Did the Washington Post Print This Morning?

Rethinking Alan Greenspan's Role in the 2001 Bush Tax Cut

Paul Krugman has, I think, retreated just a bit in his critique of Alan Greenspan and the 2001 Bush tax cut. If I read Paul correctly, he is focusing not on the testimony, which was obscure and technocratic, but on Greenspan's failure to clarify matters afterwards. Greenspan claims that he was giving a balanced, technocratic testimony, and that afterwards he and Paul O'Neill pursued the "inside game" of arguing within the councils of the Bush administration and the centrist congressional leadership that triggers--cancelling the tax cuts if the fiscal situation went south--were a necessary part of a good bill. Greenspan says that he made two mistakes:

  1. He did not recognize (although he was warned by Bob Rubin and Kent Conrad) how much the press would buy the White House's spin that he had endorsed their tax cut, and how incompetent the press would be at picking up his central message: that it would be good policy to pay off the national debt and then to balance the budget.
  2. He thought that his and O'Neill's inside game would be successful, because he did not understand the extent to which policies that made the nation better off were simply not a concern in the Bush White House.

Paul Krugman says that this is not enough. Even if he grants that Greenspan is accurately painting his thoughts at the time--rather than viewing his past through the rose-colored glasses we all use--once it was clear that the press was misinterpreting him, Greenspan should have hoisted the Jolly Roger and opened fire on the H.M.S. George W. Bush's Unconditional Tax Cuts.

Now this is a lot to ask of a guy who:

  • Hopes to be appointed to another term as chair of the Federal Reserve
  • Is a Randite, who believes that the country and the federal government would be better if it spent 4% rather than 22% of national product.
  • Is a Republican, and wants to be both a non-partisan technocrat and a team player.

But Paul has convinced me that Greenspan ought to have done more in 2001. And Alan Greenspan has made me think that he wished at the time that he could do more, but that something was stopping him. The problem is that Alan Greenspan never says just what that "something" was. The tone of his memoir is very much:

I'm just a Randite boy from Washington Heights who fell off the matzoh ball truck! Isn't America wonderful!

which is profoundly unhelpful when one is trying to assess people's perceptions of the room available for political maneuver.

So let me throw out a rash speculation, compelled by the logic of the situation rather than specific evidence. It takes off from three observations:

  • Everyone was expecting Ronald Reagan to reappoint Paul Volcker to be Fed chair in 1987. But he didn't: he appointed Alan Greenspan instead.
  • After 1992 all of George H.W. Bush's political people--and their journalistic courtesans like Fred Barnes and Robert Novak--HATE Alan Greenspan. They say that Greenspan elected Bill Clinton by refusing to lower interest rates in 1990 and 1991 to keep the economy at full employment, and that they cannot forgive this "betrayal."
  • There is a sense that Alan Greenspan soft-peddled his role as guardian of financial orthodoxy after January 21, 2001 in order not to pick large fights with the Bush administration.

How can we make sense of this. If I were Thucydides--reporting "history" not from what I can document but from my sense of what the occasion demands--I would write something like this and set it in early 1987: a conversation between Alan Greenspan and George H.W. Bush consigliere James Baker:

Baker: I am sorry we haven't been able to get you into this administration in a job at the rank you deserve. Perhaps the next one?

Greenspan: Well, I presume that you are thinking of appoining Paul Volcker to another term as Fed chair?

Baker: He is the obvious choice. He wants another term. He has credibility with the markets and so has an easier time than any replacement. We can always blame him if something goes wrong with the economy.

Greenspan: Paul Volcker is a very good guy, but he regards himself as a technocrat. He is not political, like you and I are. He does his technocratic job. Carter appointed him. Yet the fact that his monetary policies cost Jimmy Carter reelection was simply not something that entered Vocker's mind...

Baker: Volcker says that he had no choice, that he had to act in 1979-1980...

Greenspan: There is always a choice. It would be a shame if it came around to 1991, and somebody who did not understand the political realities like you and I do were sitting in the Fed chair. My old teacher Arthur Burns always understood political realities...

Baker: You make some interesting points. I think I understand you...

But I am not Thucydides. f

This does make sense of (i) Volcker's non-reappointment, (ii) the feeling of betrayal that George H.W. Bush's posse feels toward Alan Greenspan, and (iii) Greenspan's relative kid gloves toward Bush in a way that no other scenario I can think of does.