Greenspan: an Assessment

     Greenspan is someone whose standing has varied through the years: in the 90s he was more or less eulogized as the Oracle and referred to as Maestro(the name of Bob Woodward's book on him).

    In more recent years his stock has certainly evened out and come back to earth some at least at times. A more recent author, Peter Hartcher called Greenspan "Bubble Man" in the name of his title. Then we have William Fleckenstein's "Greenspan's Bubbles: Age of Ignorance at the Fed."

    So where do we assess Greenspan between these two extremes? The question of how he is to be assessed as Fed Chairman is a work in progress, though an important question.

    However I will demur from given a definitive answer to it here. I will look at Greenspan's status as a political actor here, as an advocate.

     To be sure, Greenspan himself would protest being assessed as a politician or actor. For he has always protested that he is not a political animal that his role is monetary policy and that fiscal policy is to be left to the politicians.

     In claiming that he is not political, however, it must be said that he is being entirely too modest. As indicated above, I will not weigh in categorically on his final grade as Fed Chairman-though it goes without saying he was assessed too highly in the time of Woodward's book. He certainly is far from infallible that's for sure and he himself admitted in 2008 to being "surprised" at the crisis just shortly subsequent to his tenure at the Fed.

     What I do want to consider here is simply his record as a political commentator. This is exactly what he has always claimed he doesn't do and shouldn't do. In his book published in 2007 "Age of Turbulence"(overall a good read. I certainly have to disagree with him on some central issues, some of which we'll cover here, but it was engaging and I appreciate the value he puts on understanding how the world works economically) he insists as he always has about the necessary independence of the Fed and that it's vital that it's maintained.

     As is typical, he construes the future threat as being that some politician at some point gets it in his mind to pull back on the Fed's independence. As Greenspan admits, the Independence of the Fed ultimately can be taken back by Congress-which gives the Fed it's very mandate-or the President who can always choose not to reappoint a particular chairman who has displease him.

     Greenspan worries that at some point in the future politicians unhappy with the Fed's commitment to low inflation may compromise it or even put an end to it.

     The question of the Fed's commitment to low inflation deserves a lot of comment itself. One of the stranger paradoxes to economics is the notion that there can be too much growth. This is never a popular position for politicians-or anyone else really; why if the economy is doing well should we desire to take steps to perform less well just to get the inflation rate down. With the notion that has developed over the last 50 years of the "Natural Rate of Employment" we have the specter that in good economic times the Fed is unhappy and concerned that too many have jobs!

    It must be great to know if you have a good paying job that somewhere the government itself has a problem with this and is planning to threaten it!  So Greenspan worries that the next Paul Volcker may not get the wide berth to do what Volcker did in the early 80s. In a way this almost seems a mere academic concern on Greanspan's part after all in his 19 year term(longest for a Fed Chairman) he kept rates pretty low for the most part.

    Overall it's difficult to feel to much sympathy for Greenspan's concern. For someone very converned about his independence he never let that stop him from weighing in on political matters. Though he always claimed to be merely a monetary authority and never a fiscal one the record says otherwise.

     In "Age of Turbulence" he does recount the story of how advocated for the Bush tax cuts in Congressional testimony in 2001. He expresses surprise at the criticism he received for being an advocate for Bush's cuts and also for selling out his principles on fiscal discipline and balanced budgets he had preached to Clinton back in the 90s.

    He argues that he was misunderstood and not really advocating a fiscal position and that he did not advocate Bush's tax cut in particular just that he-and this argument is surreal-felt that the budget surplus presented the government with a terrible quandary. The worst thing he claimed is that the government uses this money to buy bonds on the market.

    While he had preached fiscal discipline during the Clinton 90s he now preached the need to dispose of the surpluses as quickly as possible lest the government does mischief with it. So Greenspan went from fiscal discipline to money literally burning a hole in his pocket.

   If you have a surplus and must dispose of it as soon as possible you can either spend it or send it out in tax cuts. Greenspan expressed his preference for tax cuts. However he insisted that this wasn't backing Bush's plan just stating his preference for tax cuts in general.

   He looks back on the whole episode as with regret for being "lowered" into a political discussion. In truth there was nothing unusual about it. In Greenspan's career getting involved in discussions over fiscal policy are not the exception but the rule.

    In 2003 after the surpluses had long disappeared he argued again for Bush's 2003 tax cuts as "stimulus." Originally we needed them to dissolve the stimulus that he supported growing during the 90s under Clinton. Now with the surplus long gone it was stimulus.

    Greenspan further advocated in Turbulence for more SS cuts and this has continued to this day. A little while he made headlines that he approved letting all the Bush tax cuts expire. But he qualified this with if there is no ability to cut the deficit thru cuts to entitlements. He has always had his sites on SS and Medicare.

    What Greenspan called for in his book is what he still calls for now. He says there is a need for education with today's innovative and technological economy ignoring that many of us are highly skilled and have still been on the unemployment rolls.

    Whatever will turn around today's job market there is more to it than science and math education though this is part of it. The things that it would take to improve education he opposes anyway-more discretionary spending, not charter schools as he has suggested.

     My complaint about Greenspan is about him as a politician. While he claims to eschew fiscal policy this is not true. He continues to advocate the wrong kinds of fiscal policies.

     I don't even agree that he sold out his principles when he advocated for Bush's tax cuts. His principles have always been the same right back to the 1983 deal which "strengthened" SS buy cutting benefits and raising taxes.

     It's his fiscal legacy I oppose.