Paul Krugman: Currency Regimes, Capital Flows, and Crises: Noted
Paul Krugman: Currency Regimes, Capital Flows, and Crises: Noted

Project Syndicate: Where Is the Greenspan of 1994?

J. Bradford DeLong: Project Syndicate: Greenspan Has Left the Building:

When I first went to Washington as a grownup in 1993 to work for the Clinton Treasury Department, we saw America as having three problems that urgently needed action that year: (1) rebalancing the federal budget so that the debt-to-GDP ratio was no longer on an upward, explosive trajectory; (2) beginning to deal with global warming via the slow ramp-up of a carbon tax; and (3) beginning the reform of our extraordinarily inefficient and extraordinary expensive national health financing system. Behind those three were three more important long-run policy challenges for America: (4) updating our pension system to deal with the aging of America and the decline of defined-benefit pensions; (5) improving our education system so that more of the people who should be going to college would feel that they could risk doing so; and (6) reversing the erosion of America as a middle-class society.

None of these--well, except maybe for (6)--were partisan Democratic issues.

Dealing with healthcare financing, dealing with global warming, dealing with the long-run deficit, securing retirement income, and enabling educational opportunity--all of these were issue areas on which bipartisan progress and bipartisan agreement should have been easily attained. Yet we Clintonites found that we got absolutely no cooperation from either Republican officeholders or republican policy intellectuals. The Pete Domenicis and Alan Simpsons who talk such a good game about the long-run deficit? They never met a budget-busting Republican program they would not vote for or a deficit-reducing Democratic one that they could vote for. The economists who had talked such a good game about the negative excess burdens of carbon taxes and the importance of balanced budgets when there was a possibility of making progress toward rational policy under Reagan or Bush One? Very quiet starting in January 1993, and staying quiet after January 2001 when so much of the genuine accomplishment of the Clinton administration was dismantled with Vandalistic glee by the 5 to 4 winner of the 2000 presidential election.

But back in 1993 there was one exception: one senior republican officeholder and policy intellectual who did not forget in 1993 his policy commitments of earlier years: Alan Greenspan, then Chair of the Federal Reserve. He believed that getting the long-run financing of America's federal government onto a sound basis was an important and bipartisan public-policy goal, and in 1993-4 he was willing to take risks with monetary policy in order to raise the chances of its coming to pass. He believed that the Federal Reserve had a responsibility not just the fight inflation but also to create a prosperous, entrepreneurial society--that it had a dual mandate, with high employment as important as stable prices--and he was willing to run some risks on the inflation Control front in order to try to achieve that dual mandate during the high-tech boom of the late 1990s. He even, unique among his Republican peers, spoke--quietly in public, but loudly in private--against the feckless fiscal policies of Bush Two and his advisors.

For these reasons, Alan Greenspan has enormous street cred among all those who hope to see rational economic policy in America. If there are going to be sensible negotiating partners on the other side of the aisle, he should be at their head.

Thus I find his new book, The Map and the Territory, discouraging: the Department of Housing and Urban Development and its affordable housing goals as playing a big role in causing the financial crisis, Dodd-Frank as a large factor holding back the recovery, the Earned Income Tax Credit promoted by Russell Long of Louisiana and Ronald Reagan of California as a threat to Americans' moral fiber--too much of the book reads, as Steven Pearlstein said in his review, like soundbites lifted from the Romney-Ryan campaign website, and too little analysis and insight.

The six problems we who showed up in Washington in 1993 saw then still remain. The long-run fiscal situation remains discouraging, if not as dire as we two decades ago feared it would be right now. Health-care financing remains a mess, even if we have considerable hope that ObamaCare will start us going forward at last. But we have made no progress in two decades on global warming, or on creating a middle-class society with equality of opportunity, or creating a system in which more of those who should get more education do so, or dealing with the likely shortfall of pension income and assets in an aging America. Insights and ideas--genuine technocratic insights, not partisan bludgeons--are desperately needed.

But that is not what Alan Greenspan sees. He sees:

The choice we are being forced to make is simply this: What type of society do we wish to live in? One in which self-reliance is the ethos, where government has little role aside from setting the legal conditions of political freedom, such as the rights of minorities spelled out in the first ten amendments to the U.S. Constitution? Or a society and government whose primary function is to “entitle” citizens beyond the individual freedoms defined in our constitution, providing all forms of income transfers crafted to elevate the least privileged members of society to equality of opportunity, if not equality of economic outcomes? In short, do we wish a society of dependence... or... self-reliance?... This is at the root of the political debate between a welfare state and something far short of that...

I increasingly think that those of us who would like to see a technocratic, effective economic policy-making process in Washington have to somehow come to grips with the fact that we have no negotiating partners on the Republican side of the aisle any more.