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Greenspan’s Economics Trips on His Naïve Politics, Again

Posted By J.D. Foster, Ph.D. On July 16, 2010 @ 4:30 pm In Economics | Comments Disabled

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Alan Greenspan recently gave a Bloomberg News interview [2] with Judy Woodruff. His agenda was redemption. Hers was politics. She got what she wanted.

In the course of the interview, Greenspan acknowledged the economy was slowing, a more modest appraisal than that recently signaled by his former colleagues at the Fed who see a significant chance of a downturn and deflation [3]. He also acknowledged that “this is not going to be a full-blown recovery.”

He noted one reason for the weak recovery is that “an ever-increasing part of the American economy in the last year or so has moved under the aegis of government” and that this “creates an attitude on the part of the business community which is retrenchment, and you can see it everywhere.”

He was also asked whether letting taxes go up would depress growth, to which he responded, “Yes, it probably will.”

So, in the face of a faltering recovery that the current Fed thinks could slide into contraction, and acknowledging that it would depress growth further, the old Maestro falls into the trap once again and says we should let the 2001/03 tax cuts lapse.

His concern, of course, is a reasonable one. Obama and friends have pushed spending to the point where the current and future deficits are at dangerous levels. As Greenspan says, “Unless we start to come to grips with this long-term (deficit) outlook, we are going to have major problems.” He’s right.

He also notes that “there is a growing fear, political set of pressures to come to grips with the deficit. I think it is going to be far more difficult than anybody imagines.”
Simply put, he’s making the political judgment that cutting spending is harder than raising taxes. One can agree or not with Greenspan’s economics, but why would anyone listen to him for political judgments?

In truth, Greenspan is reflecting the classic Washington mantra: Spending cuts hard, tax cuts easy. Fortunately, taxpayers and voters outside the beltway make the final determination. Outside the beltway, the mantra is: Cut Washington, leave my taxes alone. To which we should add: Good–bye, Alan.


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URL to article: http://blog.heritage.org/2010/07/16/greenspan%e2%80%99s-economics-trips-on-his-naive-politics-again/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/Greenspan-10-6-18.jpg

[2] Bloomberg News interview: http://www.bloomberg.com/news/2010-07-16/greenspan-says-congress-should-let-bush-era-tax-cuts-expire-transcript-.html

[3] a significant chance of a downturn and deflation: http://www.telegraph.co.uk/finance/currency/7893238/Feds-volte-face-sends-the-dollar-tumbling.html

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