For the last four years, Alan Greenspan has cast himself as a champion of fiscal responsibility while lending crucial support to policies that undermine it.
Finally this week, while testifying before the Senate, he was asked about his ludicrously bad advice in 2001 that played no small part in our current budgetary morass. He explained, "It turns out we were all wrong."
Uh, "we"? Not quite.
Certainly Greenspan was wrong when he predicted huge, endless surpluses four years ago. Moderates and liberals, on the other hand, consistently warned that the projected surpluses were unlikely to materialize. We pointed out that the inflated stock market was probably making tax revenues appear too high, that President Bush's budget assumed that spending would drop far lower than was realistic, that it left no room for emergencies such as war, and that it deliberately underestimated the cost of the Bush tax cut.
The Center on Budget and Policy Priorities, a hugely influential (among liberals, anyway) research group, warned in 2001 that the cost of Bush's tax cut "exceeds the surplus that is likely to be available under realistic assumptions." The New Republic published a cover story by New York Times columnist Paul Krugman arguing that "the fiscal predictions that enable Bush to pay for his tax cut and contingency fund are not mere errors but deliberate efforts to deceive the public." Democrats repeated this theme constantly. "We have said all along these [budget forecasts] are nothing more than projections that could change almost immediately," insisted Senate Minority Leader Tom Daschle (D-S.D.).
Even more fantastic than the budget projections Greenspan endorsed was the logic he used to justify permanent tax cuts. Greenspan argued that if Congress did not cut taxes, it would either spend the surplus (which he thought would be bad) or use it to pay down the national debt. If it paid down the debt, eventually all the Treasury bills held by the public would disappear. The government would then either have to enact a huge tax cut, causing the economy to grow so fast that inflation would accelerate, or else start buying up stocks, which would amount to socialism. So we had to cut taxes right away in order to prevent the government from one day buying up private industry. This scenario sounds convoluted literally to the point of insanity, but I swear that's what he said.
