Alan Greenspan Brings Plenty of Refreshments

Alan Greenspan shows up for the sane-fiscal-policy party and brings plenty of refreshments, as he calls for the reinstatement of and the strengthening of the 1990 Budget Enforcement Act's PAYGO provisions:

FRB: Testimony, Greenspan--Budget process reforms--April 21, 2005: [T]he unified budget ran a deficit equal to about 3-1/2 percent of gross domestic product in fiscal 2004, and federal debt held by the public as a percent of GDP has risen noticeably since it bottomed out in 2001.... [A]s the latest projections from the Administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken.

In my judgment, the necessary choices will be especially difficult to implement without the restoration of a set of procedural restraints on the budget-making process. For about a decade, the rules laid out in the Budget Enforcement Act of 1990 and in the later modifications and extensions of the act provided a framework that helped the Congress establish a better fiscal balance.... Many of the provisions that helped restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated ever more frequently; finally, in 2002, they were allowed to expire.

Reinstating a structure like the one provided by the Budget Enforcement Act would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process. Such a step would be even more meaningful if it were coupled with the adoption of a set of provisions for dealing with unanticipated budgetary outcomes over time.... [A] well-designed set of mechanisms that facilitate midcourse corrections would ease the task of bringing the budget back into line when it goes off track.... Measures that automatically take effect when costs for a particular spending program or tax provision exceed a specified threshold may prove useful as well. The original design of the Budget Enforcement Act could also be enhanced by addressing how the strictures might evolve if and when reasonable fiscal balance came into view.

I do not mean to suggest that the nation's budget problems will be solved simply by adopting a new set of rules. The fundamental fiscal issue is the need to make difficult choices among budget priorities.... [F]uture Congresses and Presidents will, over time, have to weigh the benefits of continued access, on current terms, to advances in medical technology against other spending priorities as well as against tax initiatives that foster increases in economic growth and the revenue base.... [W]e have been in a demographic lull. But this state of relative stability will soon end.... The combination of an aging population and the soaring costs of its medical care is certain to place enormous demands on our nation's resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate...

Left unsaid--but very clear in everyone's mind--is that nobody can think of a single legislative proposal of the Bush administration or a single budget passed by the Republican Congress that has been in accord with the spirit of PAYGO. Greenspan is letting the Republican congressional leadership know that in his view it has done an absolutely horrible job at fiscal policy.

Comments

[SW]

And nothing whatever about the repeal of the estate tax. what a wanker.

[Cal]

Greenspan was the chief enabler of these six years counting of fiscal irresponsibility. He can jump in the lake and I wish a Democrat on the banking committee would get in his grill about it.

[howard]

or to put the prof's final sentence another way, "Greenspan is letting the Republican congressional leadership know that in his view (AND WITH HIS ENABLING) it has done an absolutely horrible job at fiscal policy."

[pgl]

Shorter Greenspan: we need benefit cuts and please don't ask about me about taxes. Star Wars analogy - it's all part of the Emperor's grand plan.

[Frank]

Its too bad that Greenspan didn't mention this when John Kerry was running. Right after the debate when Kerry reccommended returning to paygo and Bush mocked the idea.

[Ken Houghton]

"Greenspan is letting the Republican congressional leadership know that in his view it has done an absolutely horrible job at fiscal policy."

Nicely subtle. Good thing he doesn't speak for the Federal Reserve.

[praktike]

Shorter Alan Greenspan: "OK, now that the bathwater is drawn, it's time to roll up our sleeves and commencing the drowning."

[charles]

What Cal and Howard said. Do you think more people (sincluding some on Capitol Hill) might say this out loud?

Charles

[Derelict]

I think you're giving Greenspan's statements more credit than they're due (so to speak). A case can equally be made that what Greenspan is subtly calling for is abolishing Social Security and simply converting the trust fund into general fund moneys (along with retaining the payroll tax and pumping that into the general fund as well). Indeed, that is exactly the twisted lesson I expect the Republican Congress to begin talking up in the next couple of days, though in language not nearly so blunt.

That fact that Greenspan said nothing whatever about taxes tells us that his expectation is for the PAY part of PAYGO to come out of spending. Given that more than 80% of the budget is now locked in non-descretionary spending and that no Republican will ever, ever cut defense/security spending in a meaningful way, that leaves only the option of doing a slash-and-burn on entitlement programs. And where better to start than that fat, plump Social Security trust fund? Just announce that everyone under 55 will be converted to personal accounts only, kick the remaining money to the general fund, convert the remaining payroll tax into general revenue and VOILA! Budget problem solved.

Greenspan is a hack, but I shudder to think of who will replace him.

[ken melvin]

Mumbling got Mumbles along way but subtlety don't cut it with the dimwitted right side of the house. Best bring in cartoonists.

[crhis]

Get your cynical level up before we're all derelicts. Mr Magoo is being trotted out to help do the worst.

[Robert Waldmann]

I thought Brad's post was oddly enthusiastic. The view seems to be widely shared (also by Kevin Drum). I assume that Brad knows he is speaking in public and is emphasizing the positive.

The suspicion that the bad Randian Greenspan kidnapped the good technocrat Grenspan (again) and testified in his place is very much supported by "tax initiatives that foster increases in economic growth and the revenue base."

Not only did Greenspan not called for repeal/non-extension of the appalling tax cuts he supported, he repeated the same old emperically unsupported claims about the effect of taxes on growth. His proposal is clear (for him) cut medicare and keep/extend the tax cuts for rich people. Of course, we know he wants much more extreme spending cuts and tax increases.

Still I think strategically it is best to pretend Greenspan is not a hack and stress the criticism of Republican irresponsibility.

[chris]

During one of those 3-1/2 trips a week that he makes to the White House, Greenspan will fold. I don't know what Randian means. It's been demonstrated he makes a perfectly good lap dog when needed. I don't know why his reputation is as good as it seems amongst some of the readers here. His good work during the 90s is partially due to circumstances beyond his control, just as Clinton gets good credit for budgeting during the internet bubble.

He eased too much and too often. He wrote 700 pages of kind of a Robbe-Gillet guide on how to create moral hazard. Between the RMB/USD Mexican stand-off, rising interest rates, and over leveraged hudge funds, there's going to be things blowing up. With his low rates during Bush's first term, the only job he saved was W's.

[anne]

There has been a trap set even if some in Congress were willing to moderately increase taxes. A tax increase is the only way to pare the structural budget deficit, but a tax increase will turn away every promise of Republicans and there is another election as always coming. So, there can be no tax increase. The budget deficit will grow faster than the economy can grow. Oh dear....

[liberal]

Echoing Robert Waldmann's comment above...

The _Washington Post_ had an interesting article today (http://www.washingtonpost.com/wp-dyn/articles/A8101-2005Apr21.html) on Greenspan's testimony.

Face it---the man is evil, reverse-Robinhood scum.

[bakho]

Martin Mayer finds problems with SS retirement accounts and timing the purchases of an annuities.

http://www.nytimes.com/2005/04/22/opinion/22mayer.html?ex=1271822400&en=3f615ecbf3895089&ei=5088&partner=rssnyt&emc=rss

The bottom line is that Greenspan did a poor job of setting up the SS plan in 83 and now he is worried about the bills coming due. AG did not foresee a GOP president (Reagan) tripling the national debt or 3 GOP presidents ringing up more than $5.4 Trillion in debt. The right wing Southern radicals have left mainstream fiscally responsible Republicans like Greenspan and O'Neill to eat their dust. It is sad to see AG groveling before a Party that thinks he is old and in the way. Greenspan needs to get off his knees and tell the GOP goodbye. The fiscal conservatives these days are all Democrats.

[bakho]

Greenspan admits he was gullible, naive and politically inept in his 2001 testimony. Greenspan got run over by the Bush express because he mistakenly believed he was dealing with a fiscally responsible administration instead of a corrupt political machine with plans to raid the US Treasury.

Sen. Paul Sarbanes, D-Md., needled Greenspan for endorsing large tax cuts in 2001, saying Bush's tax package helped create current large deficits, including $412 billion of red ink last year.

Greenspan said he had not explicitly endorsed Bush's plan and had further called for triggers to limit tax cuts if the budget picture worsened.

Greenspan called it "frankly unfair" to focus on part of his testimony while ignoring the other part, adding it had not been his intent to start a tax-cut stampede.

ACTUALLY, it is very fair, because once AG set off the stampede he did NOTHING to try to reverse it.

[me]

"Greenspan said he had not explicitly endorsed Bush's plan and had further called for triggers to limit tax cuts if the budget picture worsened."

He also never said they would NOT result in the budget train wreck we now call the US economy.

[ken melvin]

In the new Greenspan economy tax cuts go to the wealthy, no one wants to invest so interest rates are lowered until houses are refinanced then the money is used to buy cheap imports at Wal-Mart thus stimulating China's economy.

[anne]

Excellent:

http://www.nytimes.com/2005/04/22/opinion/22krugman.html?hp

Passing the Buck
By PAUL KRUGMAN

The United States spends far more on health care than other advanced countries. Yet we don't appear to receive more medical services. And we have lower life-expectancy and higher infant-mortality rates than countries that spend less than half as much per person. How do we do it?

An important part of the answer is that much of our health care spending is devoted to passing the buck: trying to get someone else to pay the bills.

According to the World Health Organization, in the United States administrative expenses eat up about 15 percent of the money paid in premiums to private health insurance companies, but only 4 percent of the budgets of public insurance programs, which consist mainly of Medicare and Medicaid. The numbers for both public and private insurance are similar in other countries - but because we rely much more heavily than anyone else on private insurance, our total administrative costs are much higher.

According to the health organization, the higher costs of private insurers are "mainly due to the extensive bureaucracy required to assess risk, rate premiums, design benefit packages and review, pay or refuse claims." Public insurance plans have far less bureaucracy because they don't try to screen out high-risk clients or charge them higher fees.

And the costs directly incurred by insurers are only half the story. Doctors "must hire office personnel just to deal with the insurance companies," Dr. Atul Gawande, a practicing physician, wrote in The New Yorker. "A well-run office can get the insurer's rejection rate down from 30 percent to, say, 15 percent. That's how a doctor makes money. ... It's a war with insurance, every step of the way."

Isn't competition supposed to make the private sector more efficient than the public sector? Well, as the World Health Organization put it in a discussion of Western Europe, private insurers generally don't compete by delivering care at lower cost. Instead, they "compete on the basis of risk selection" - that is, by turning away people who are likely to have high medical bills and by refusing or delaying any payment they can.

Yet the cost of providing medical care to those denied private insurance doesn't go away. If individuals are poor, or if medical expenses impoverish them, they are covered by Medicaid. Otherwise, they pay out of pocket or rely on the charity of public hospitals.

So we've created a vast and hugely expensive insurance bureaucracy that accomplishes nothing. The resources spent by private insurers don't reduce overall costs; they simply shift those costs to other people and institutions. It's perverse but true that this system, which insures only 85 percent of the population, costs much more than we would pay for a system that covered everyone....

[JimPortlandOR]

Having played the accomplice to rape (the tax cuts) by holding down the arms of the victim while saying no harm will be done, now Greenspan worries that the victim is pregnant but no funds for bearing and rearing a child are available, and so he advocates that what is needed is a starvation diet for both the victim (and the rest of society) to prevent unaffordable credit card bills leading to bankruptcy.

Why oh why does the media, the Congress and the people let him get away with this hackery.

[Jennifer]

This imagery is not appropriate.

[Aunt Deb]

Anne, thanks so much for the Krugman piece. Very upsetting. People in power, like Mr. Greenspan, do not have to worry about medical care or delivery of health service, save in the abstract, as a 'system'. This affords them the luxury of pretending the significant point of debate is privatization versus nationalisation. But I fear that more and more the question is becoming just what percent of our population can we dismiss as unnecessary?

[anne]

Agreed, Aunt Deb. We can keep the set of articles as the come:

http://www.nytimes.com/2005/04/11/opinion/11krugman4.html?ex=1270872000&en=3f7b7127e66e3b67&ei=5090&partner=rssuserland

April 11, 2005

Ailing Health Care
By Paul Krugman - New York Times

Those of us who accuse the administration of inventing a Social Security crisis are often accused, in return, of do-nothingism, of refusing to face up to the nation's problems. I plead not guilty: America does face a real crisis - but it's in health care, not Social Security....

http://www.nytimes.com/2005/04/15/opinion/15krugman.html?ex=1271217600&en=fcdc74414f087ebc&ei=5090&partner=rssuserland&emc=rss

The Medical Money Pit
By PAUL KRUGMAN

A dozen years ago, everyone was talking about a health care crisis. But then the issue faded from view: a few years of good data led many people to conclude that H.M.O.'s and other innovations had ended the historic trend of rising medical costs.

But the pause in the growth of health care costs in the 1990's proved temporary. Medical costs are once again rising rapidly, and our health care system is once again in crisis. So now is a good time to ask why other advanced countries manage to spend so much less than we do, while getting better results....

[notyou]

"In the new Greenspan economy tax cuts go to the wealthy, no one wants to invest so interest rates are lowered until houses are refinanced then the money is used to buy cheap imports at Wal-Mart thus stimulating China's economy."

...creating a spike in demand for oil which leads to record profits for US oil companies.

Clever.