Wednesday, March 16, 2005

Some perspetive on Greenspan's testimony yesterday that the Times doesn't provide.

In this morning's Times Edmund L. Andrews "Greenspan Defends His Support of Tax Cuts" is worth checking out. Not because it provides any real perspective. But let's note it for what's in it:

Mr. Greenspan acknowledged that he and many others had been wrong to expect trillions of dollars in surpluses that never materialized.

But in testimony before the Senate Special Committee on Aging, he said almost all budget analysts were predicting a stream of large surpluses at the time.
"I look back and I would say to you, if confronted with the same evidence we had back then, I would recommend exactly what I recommended then," Mr. Greenspan said. "It turns out we were all wrong."

[. . .]

Senator Hillary Rodham Clinton, Democrat of New York, told Mr. Greenspan on Tuesday that his support for tax cuts had set the stage for the government to spend surpluses that were building up in the Social Security trust fund's "lock box."
"Your testimony helped blow the lid off the lock boxes when it came to the size of the tax cut, the extent of the tax cut," Mrs. Clinton said.

Senator Clinton is correct. And Greenspan is at best foggy with his replies. He claims no one could have forseen . . .

Blah, blah, blah.

Forget that it's his job to forecast, he could and did forsee what he claims was unforseeable. He saw it in March of 2001. He just didn't rush to inform Congress. (Read on.)

This article's not a great deal of use to us. (It's a he-said-this-and-then-she-said-that.)

Want to bet that Hillary Clinton spoke to Robert E. Rubin? Greenspan did. Before he proposed the tax cuts.

Yes, Greenspan did suggest tying tax cuts into the surplus (and Rubin advised him they should be conditional on each year's surplus). Senator Kent Conrad spoke to Greenspan at length about this issue. (And set up the meeting between Rubin and Greenspan.)

And this isn't "private knowledge." It's right there in Ron Susskind's The Price of Loyalty. A book whose accounts Greenspan's never disputed -- Greenspan and Paul O'Neill are old, old

Pages 38 to 39 will find a discussion on the economy ("in a few places it was softening rapidly")
O'Neill and Greenspan had (January 5, 2001). And Greenspan should have known a lot more due to his job. And should have planned for what-happens-if-the-bubble-ends and made sure others in the government were prepared for that possibility as well.

Go to page 138 (which should be March 15, 2001):

Today's news, they [O'Neill and Greenspan] agreed, might as well be served on ice, like a dead fish. Every major paper led with the declining stock market. The Dow had dropped for three of the last four trading days, and yesterday had closed below 10,000 for the first time in a year.
The Washington Post headline pointed to GLOBAL SLOWDOWN. The Los Angeles Times blamed JAPAN'S WOES. USA Today, which O'Neill had added to his morning habit, went in a different direction. Its front page story emphasized how the market's collapse was hitting the U.S. Treasury. The paper cited several respected private forecasters whose analyses suggested that, owing to the resultant loss in corporate, capital gains, and other tax revenues, a fifth to a half of the projected ten-year, $5.6 trillion surplus could be wiped out.
They talked about how the next round of budget projections, due out in mid-July, would show the surplus reduced but agreed that the tax bill debate should be well over by then.

Oh, as long as the tax bill debate will be over and decided by then, no problem apparently. No reason to sound any alarms. O'Neill was a part of the administration. Greenspan is chairman of the Federal Reserves. There's a world of difference between the two posts and it's expected that chairman of the Fed will speak a great deal more frankly when dealing with Congress.

But over breakfast with O'Neill, Greenspan's attitude towards his responsibilities suggest anything but frank exchanges with Congress.

By the way, if and when the Bully Boy ever gets around to putting out a plan for his ill-fated war on social security, you'll understand the hedging remarks Greenspan keeps making if you refer to The Price of Loyalty. By all indications, the Bully Boy's plan won't deal with the issue Greenspan (according to Ron Susskind's book) wants dealt with.

Greenspan's still speaking softly on that. (Not frankly.) But then as he told Robert Rubin, he's not responsible for people's perceptions. Page 62:

"I can't be in charge of people's perceptions. I don't function that way. I can't function that way."

One could argue the position he holds is all about perception. The position, he's too long held. The position is certainly about frankness with regard to the economy but Greenspan shies away from frankness. (He noted in his testimony yesterday

As Lily Tomlin says in The Search for Intelligent Signs of Life in the Universe (written by Jane Wagner): "But hey, if it weren't for false hopes, the economy would just collapse."

If he can't communicate frankly to Cheney (pages 44 to 49), then maybe it's time he stepped down. (Gee, you think?)

Again, I don't doubt that Clinton's spoken to Rubin. There were strong points to her questions and behind them (she's obviously well aware of the situation and done her homework and then some) but you won't realize that by reading the article in today's Times.

Page 61 of Susskind's book notes Conrad's reaction (upon reading Greenspan's 2001 Congressional testimony), "What you'll do is throw fiscal responsibility out the window."

Also from page 61:

Conrad, a mild-mannered North Dakotan, began complaining about how unreliable ten-year forecasts are, that there was no $5.6 trillion surplus, that half was Social Security, and "if the government would just engage in honest accounting and take appropriate notice of its long-term liabilities, there'd be no surplus . . . these surpluses are fictional!"

Greenspan assures him (page 62): "The numbers show we'll be virtually out of debt, the held debt of the government, by 2008."

Yet later, in March, when the papers were trumpeting problems with the markets, Greenspan knew that the surplus would be reduced that same year (2001) but also knew that the tax debate would long be over.

The Times article reports Greenspan testifying yesterday: "We were confronted at the time with an almost universal expectation amongst experts that we were dealing with a very large surplus for which there seemed to be no end."

When were "we" "dealing" with that? In March of 2001, Greenspan knew better. Why wasn't he sounding alarms?

Again, the job requires a frankness. I'm not seeing any indication that Greenspan was up to that requirement.

The article does tell you this:

What was expected to be a $5.6 trillion surplus by 2011 is now expected to be at least a $4 trillion deficit by 2015 if the tax cuts are made permanent.

Edmund L. Andrews may or may not be aware of what's in the public record (who knows what was cut or rewritten in his article). But Hillary Clinton is no doubt very well aware of this. And there's a reason for her questions and you don't really grasp that from this article. These aren't, "I'm confused, how did this happen?" questions. These are, "I know what I'm talking about and the country deserves some frank answers."