Greenspan

When Bill Clinton headed out of town last month, political pundits were anointing the former President as Washington’s master politician. Perhaps not the most ethical, but the most skilled was a near unanimous
verdict.

Did these pundits overlook Alan Greenspan, the Federal Reserve Chairman who has had everyone from right wing conservatives to staunch liberals sitting reverently at his feet waiting for words of economic wisdom for the past eight years? If not the most skilled politician of our time, surely he has a solid claim on being the most flexible.

Last year, Greenspan dumped a lot of very chilly water on the idea of a big tax cut. What to do with the projected budget surplus? Pay down the debt was the pronouncement of the Federal Reserve Chairman.

Now, Greenspan has undergone a miraculous and much ballyhooed conversion. Suddenly, big tax cuts, according to Greenspan circa 2001, are just the right medicine for the economy. Gone are the cautionary
warnings of last year.

What brought about the change? True the economy has slowed slightly, but a bigger change, in the eyes of the Federal Reserve Chairman, was the arrival of a new occupant of the White House who had placed a truly big tax cut?$1.6 trillion (largely for the wealthy)?at the top of his political-economic agenda.

Greenspan’s conversion produced headlines in newspapers across the nation, and changed the odds in favor of the new President’s agenda. Greenspan’s embrace of Bush economics stung Democrats who had hopes of modifying the Bush plan or, at least, targeting some of the cuts lower in the tax brackets. Privately, Democratic leaders were infuriated that Greenspan had so openly and so quickly used his considerable clout to tilt the battle in favor of Bush.

If the Democrats are unhappy with the turn of events, they have only themselves and their recently departed President Clinton to blame. Despite Greenspan’s long high profile work in Republican vineyards, President Clinton reappointed Greenspan twice to the Chairmanship of the Federal Reserve, giving up opportunities to replace him with someone who would move the policies of the Fed on a more progressive, more consumer
oriented course.

Not only the White House, but the Congressional Democrats wrapped their arms around Greenspan in loving embraces every time the Fed Chairman appeared on Capitol Hill in the 1900s. When the nomination for Federal Reserve Chairman was up during the first Clinton term in 1996, the Democrats on the Senate Banking Committee–led by a leading liberal, Paul Sarbanes voted unanimously to endorse Greenspan. Ditto when the
nomination was up again last year. Only a handful of Democratic Senators like Tom Harkin, Byron Dorgan, Harry Reid and Paul Wellstone have ventured forth to criticize the Greenspan policies when his nominations were on the floor of the Senate.

President Clinton and the Congressional Democrats can’t claim ignorance about Greenspan’s conservative, pro corporate, anti-consumer background. His views have been quite visible as an economic guru for the Republican party, a leading disciple of Ayn Rand and as a lobbyist for financial corporations including such notorious operations as Charlie Keating’s Lincoln Savings which failed at a cost of $2.5 billion to the taxpayers in the 1980s. In between, he sat on boards of directors of many major corporations including Mobil Oil, Alcoa and J. P Morgan and Company. He served as an advisor to President Nixon, and Chairman of the President’s Council of Economic Advisers under President Ford. He was appointed to the Federal Reserve Chairmanship by President Reagan and reappointed by President George Bush, father of George W. Bush.

In an article published in 1963 as part of Ayn Rand’s book, “Capitalism: The Unknown Ideal,” Greenspan lashed out at government regulation declaring that the protection of the consumer “against dishonest and unscrupulous business was the cardinal ingredient of welfare statism.”

Faced with filling the Federal Chairmanship in 1996 and 2000, President Clinton apparently saw no major differences between his social and economic policies and those espoused through the years by Alan Greenspan in service to various Republican leaders and corporations. And if there were doubts among Democratic Members of Congress, they, for the most part, kept it to themselves.

So, now the Democrats on Capitol Hill face the daunting task of convincing their colleagues and the American public that there are important differences in tax policy between the major parties the words of President Clinton’s Federal Reserve Chairman notwithstanding.

The lack of Congressional oversight, secrecy and a fawning unquestioning press have combined to encourage Greenspan to assume a role in economic policy making that goes beyond the Federal Reserve’s statutory assignment as monetary czar. The debate over fiscal policy involves broad political as well as economic and social issues that are outside the more narrow responsibilities that are assigned by the Federal Reserve Act.

Because of the inordinate political clout that the Federal Reserve has amassed, pronouncements by Greenspan threaten to short circuit much needed Congressional and public debate over economic policy involved in the tax cut proposals. Greenspan’s testimony before the Senate Budget Committee in late January was an overt attempt by the Federal Reserve to intervene in Congressional policy deliberations and undermine the Legislative Branch’s authority to decide the fate of fiscal policy initiatives put forward by the President.

Clearly, there is an overriding need to restrain wide ranging policy excursions by a Federal Reserve Board that operates largely in secret, avoids the checks and balances of the appropriations process and receives a pass from all but the most pro forma Congressional oversight.