Grownup Republican Watch

Doug Henwood emails the views of Alan Greenspan, as relayed by French Finance Minister Thierry Breton:

Reuters - September 24, 2005: Paul Carrel: WASHINGTON -- U.S. Federal Reserve Chairman Alan Greenspan told France's Finance Minister Thierry Breton the United States has "lost control" of its budget deficit, the French minister said on Saturday. "'We have lost control' -- that was his expression," Breton told reporters after a bilateral meeting with Greenspan. "The United States has lost control of their budget at a time when racking up deficits has been authorized without any control" from Congress, Breton said. "We were both disappointed that the management of debt is not a political priority today," he added.

Ministers from the Group of Seven rich nations on Friday called for vigorous action around the world to curb rising imbalances in international trade and investment accounts. A decrease in the U.S. budget deficit were cited by the G7 as one way to ease those imbalances. U.S. Treasury Secretary John Snow said the U.S. administration was still committed to halving its budget deficit by 2009.

Breton spoke as International Monetary Fund Managing Director Rodrigo Rato said U.S. plans to cut its government expenditures now looked ambitious in the light of huge reconstruction costs to be borne in the wake of Hurricane Katrina.

Breton said: "The situation that is creating tension today on the currency market ... is clearly the American deficit." The United States needed to address its budget deficit, he said, adding: "It seems to me that my counterpart John Snow is completely aware of this, he wants to harness the problem, but it seems to me he doesn't have the room for maneuver." Breton added that after hearing Greenspan talk about inflation: "One has the feeling -- though he didn't say so -- that interest rates will probably continue to rise slightly until his departure."...

Comments

[Gareth]

Greenspan only gets to be called a grown up when he takes responsibility.

[Big Al]

A wealth tax on everyone, and companies would not be too onerous, while still bringing in the necessary cash.

[Jim Dandy]

It’s a bit too late in the day for Greenspan to be engaging in this kind of talk.

Early in the game of Bush’s fiscal recklessness, he was the one helping to provide rationalization for the tax cuts that started the budget making process down the road to creating deficits as far the eye can see.

Now that the horse is out the gate, he could best help to restrain it by calling al least for not extending the cuts already on the books and no further cuts.

[Ralph]

This explains the frantic comedy-of-errors media show put on by Republican congresspeople last week under the obscure rubric Operation Offset. A bunch of political clowns forming part of the Republican congressional cohort showed up on CNN trying to name their favorite budget targets for cuts to offset the out-of-control budget deficit. Examples cited were CPR's $400 million budget, the Earned Income Tax Credit, Sen Don Young's bloated pork barrel for his home state of Alaska such as bridges serving tiny isolated communities of privileged Alaskans. Naturally Young rejected this suggestion knowing it was all a staged media event.

[bakho]

Is there a "Fantasy Federal Budget" version of Fantasy Football?? I could easily cut the 2009 deficit in half (WTF that means) by budget gimmicks of frontloading spending into 2008 and postponing revenue collection until 2009. Of course, the budgets in 08 and 10 would look like hell but hey, it would meet the criteria of cutting the budget in half by 2009. We could run trillion dollar deficits in 06, 07 and 08 and still meet the Bush goal of cuttting the deficit in half by 2009. Of course, whoever was elected in 08 would need to bring a stack of "Bun Bags" to collect the mess in the 2010 budget.

Does anyone think Snow is more than an empty suit?

The GOP is due for a wake-up call in 06.

[Movie Guy]

Speaking of grownup watch...

Those Commie bastards are at it again.

2005-09-26 Beijing Time

http://www.shanghaidaily.com/art/2005/09/26/191994/New_rules_for_news_Websites.htm

http://www.wired.com/news/politics/0,1283,68982,00.html?tw=wn_tophead_3

[Brad DeLong]

Re: "It’s a bit too late in the day..."

It's never too late to come to the party--*if* you bring enough refreshments.

[s9]

I don't know.

If it's so bad that Alan Greenspan is can only fluff by saying that the U.S. has "lost control" of its budget, then it must be *really* bad. Maybe Doctor Exuberance was trying to play down the truly ghastly reality of the situation: that the policies of fiscal imbalance are the result of a consensus arrived at by well-informed and intelligent deliberation. What if "lost control of the budget" is code for "entered the final stage of the blow-out?"

[sd]

Mildly off topic, but I'd like to register my opinion that Greenspan gets a bum rap from anti-Bush liberals and deficit hawks of all stripes for endorsing the original Bush tax cuts. There is a perfectly reasonable and perfectly sane line of thinking that is very distrustful of the government running a long term budget surplus. It was quite right of Greenspan to favor tax cuts when the long term budget outlook was in the black.

Now of course we are in a different fiscal situation, and the appropriate fiscal policy is probably different. But it seems to me that you can't fault Greenspan for favoring tax cuts in early 2001 unless you believe:

1) That it would be a good idea, long term, for the federal government to tax the economy at level that exceeds its own need for funds and then somehow find a way to spend the extra money, need or no need; or

2) That the surplus was ephemeral, based on long-term budget projections that were exceptionally sensitive to small changes in the underlying assumptions. If you believe this, it seems quite unfair to blame Bush for turning a huge surplus into a huge deficit.

P.S. Of course one could still have thought in early 2001 that tax cuts were a good idea but that the specific tax cuts recommended by Bush were too skewed in favor of the well-off. Fair enough, but if you hold to that opinion yourself you might in the interest of humility at least try to run the numbers on a tax cut that is similar in size to the Bush tax cut but that isn't weighted toward the rich who, after all, pay a huge proportion of the overall tax bill for the country. Not impossible, but not a trivial challenge either.

[Cal]

Here's a refreshment that Greenspan can bring: In his last public testimony before Congress, he can say that Supply Side economics is a bunch of crap and until the Republican's in power come the this realization they are destined to flush fiscal policy down the toilet. He also has to say that the Wall Street Journal editorial page is best use to wipe. Short of that, Greenspan is a hack just like Krugman says he is.

[Pancho Villa]

'...*if* you bring enough refreshments'

and a punch bowl...

[KevinNYC]

sd, are you kidding?

You act like the US had no debt in 2001. Bush claimed he cut have tax cuts, deficit reduction and fix Social Security all the same time. This is the economic equivalent of everyone gets a free pony pulling a wagon full of ice cream.

A sensible policy would have been to pay down the national debt for a couple of years and wait to see if the predicted surpluses actually existed. We as a nation would be better off if there was another year of the Clinton presidency. Perhaps if the recession that started in March 2001 had happened, they would have been less discussion of how to distribute the ponies and ice cream.

[Robert the Red]

Unless Greenspan says these things in public, he has lost any right to intellectual or moral respect. Oh well, we're screwed.

[kharris]

sd,

While the source of the windfall of revenue was not entirely clear when it was getting underway, by the time Greenspan advocated tax cuts, we had a pretty good idea where it came from. In part, it was from a massive influx of capital gains tax revenues. Unless we anticipated that capital gains would continue at the same pace for the long term, there was no reason to anticipate the Treasury would "tax the economy at a level that exceeds its own need for funds." The Treasury had been buying back debt, which seems a fairly responsible "way to spend the extra money" given the demographic outlook. Bush acknowledged the demographic problem (or just parroted Gore, which ever you like) in saying he'd keep Social Security surpluses in a "lock box" during the debates. He lied.

Point 2 doesn't work any better. The surplus was ephemeral, and there was reason to believe it would be. If standard revenue forecasts anticipate lower revenues than are actually taken in for a period of time, there is reason to think something extraordinary is going on, and that it won't go on forever. Cutting taxes and boosting spending – at a time the Fed was saying it could handle any necessary economic stimulation – that was Bush's policy. If we are not to blame him for a deficit based on policies that many economists criticized at the time as ill-conceived, policies that Bush himself said he would not pursue to the point of wrecking the budget, then it is hard to see that we can hold politicians responsible for anything. That seems, in fact, to be the case through much of Bush's presidency.

[JackNYC]

Prediction:
With home ownership the highest it has ever been, the Republican cure for the deficit will be the elimination of the deduction for mortgage interest. And the DLC Dems will roll right over (Hell, I’ll take odd on Lieberman being the one to float the idea!)

[Cranky Observer]

> There is a perfectly reasonable and perfectly
> sane line of thinking that is very distrustful
> of the government running a long term budget
> surplus. It was quite right of Greenspan to
> favor tax cuts when the long term budget
> outlook was in the black.

As a Bush-hating librul, albeit a fiscally responsible one, I would have been willing to entertain that argument. IF, and only IF, we were anywhere near paying off the DEBT, which of course we were not. Had we been at equilibrium or near a modest surplus, tax cuts might have made sense, but we were _nowhere near_ that point. And Mr. Greenspan knows very well what he did to Social Security in the 1980s, so there is no excuse for the 2001 cuts.

Cranky

[anne]

When Alan Greenspan worries about the budget for us, the ideas he wishes us to accept are that Social Security, Medicare and Medicaid are quickly becoming too expensive to sustain however current tax structure is just fine. I profoundly differ. Alan Greenspan blessed current tax policy while repeatedly warning about the dangers of maintaining Social Security benefits in particular. I find no problem with Social Security, a problem in several years with Medicare spending that can well be resolved with benign structural changes in the program. Medicaid spending needs better controls, but there is no reason slash Medicaid spending that is essential for low income households.

[anne]

Speaking of spending controls:

http://www.nytimes.com/2005/09/26/national/nationalspecial/26spend.html

Many Contracts for Storm Work Raise Questions
By ERIC LIPTON and RON NIXON

WASHINGTON - Topping the federal government's list of costs related to Hurricane Katrina is the $568 million in contracts for debris removal landed by a Florida company with ties to Mississippi's Republican governor. Near the bottom is an $89.95 bill for a pair of brown steel-toe shoes bought by an Environmental Protection Agency worker in Baton Rouge, La.

The first detailed tally of commitments from federal agencies since Hurricane Katrina hit the Gulf Coast four weeks ago shows that more than 15 contracts exceed $100 million, including 5 of $500 million or more. Most of those were for clearing away the trees, homes and cars strewn across the region; purchasing trailers and mobile homes; or providing trucks, ships, buses and planes.

More than 80 percent of the $1.5 billion in contracts signed by the Federal Emergency Management Agency alone were awarded without bidding or with limited competition, government records show, provoking concerns among auditors and government officials about the potential for favoritism or abuse.

Already, questions have been raised about the political connections of two major contractors - the Shaw Group and Kellogg, Brown & Root, a subsidiary of Halliburton - that have been represented by the lobbyist Joe M. Allbaugh, President Bush's former campaign manager and a former leader of FEMA.

"When you do something like this, you do increase the vulnerability for fraud, plain waste, abuse and mismanagement," said Richard L. Skinner, the inspector general for the Department of Homeland Security, who said 60 members of his staff were examining Hurricane Katrina contracts. "We are very apprehensive about what we are seeing." ...

[bakho]

sd- just as Bush "fixed the intelligence on Iraq WMD", Bush "fixed" the budget assumptions in order to support his tax cuts. Budget experts even during the campaign were wildly waving the red flags, but were more or less ignored by a press more concerned with the wardrobe of Al Gore. Krugman almost nailed it as far back as his Feb 2, 2000 when he predicted that Bush would have to make huge spending cuts to cut taxes and balance the budget.

http://www.pkarchive.org/column/2200.html

What Krugman missed was that Bush indeed had no intention of cutting spending. To the contrary, Bush has rapidly expanded discretionary spending and run huge budget deficits. One could (I suppose) argue that Bush was "deceived" by bad budget numbers the same way he was "deceived" about Iraq WMD. However, that would still be no excuse for not making the necessary adjustments once it was indisputable that his budget projections were faulty. The conclusion is as suscinctly stated by Mr Cheney, "You know, Paul, Reagan proved deficits don't matter." This administration does not think deficits are a problem, so they are not serious about fiscal policy.

[João Carlos]

I think that the right question to make now is not 'IF' the dolar hard diving will happen, but 'WHEN'.

Currently, the Central Banks all over the world are sustaining the dollar. They don't want the public start a mad run to sell dollars, something that will destroy the international commerce and bring the chaos to the economy of every country over the earth.

However, I think the Central Banks cannot sustain the dollar for long time now. If the federal budget defict don't start to lower fast or if inflation start to hit the dollar strongly, the public will eventually start the "Mad Run" sooner or later. Any event now can start the "Mad Run". I think that hurricanes damage bringing recession to USA economy and making the housing bubble burst is not a good thing...

João Carlos

Sorry the bad english, my native langauge is portuguese.

[P O'Neill]

Watch this "lost control" quote get attributed to mistranslation very, very soon. Notwithstanding that Breton's English is probably excellent and the conversation likely took place, without translators, in English.

[RT]

Anne speaks for me when she says:

"When Alan Greenspan worries about the budget for us, the ideas he wishes us to accept are that Social Security, Medicare and Medicaid are quickly becoming too expensive to sustain however current tax structure is just fine. I profoundly differ."

Brad, just how much in the way of refreshments would Greenspan have to bring, given how very late he's showing up at the party? A six-pack of Bush Lite isn't gonna cut it at this late date.

A serious, specific, nonideological, and fairly complete outline of remedies to the budget problem would be the minimum to get him in the door, I would think - and IMHO, no one should bother talking to him until he's willing to go toe to toe with Bush and his spokespersons in demanding that Bush - at a bare minimum - not let any new tax cuts take effect (if they've already been passed by Congress, but haven't taken effect yet) or become law.

Greenspan's stance in 2001 gave Bush the cover he needed to win wavering votes for his 2001 tax cut package, and his absence from the battlefield has helped Bush roll a succession of further tax cuts through Congress.

However great he may be in his Fed-specific duties, he's been quite harmful to America in his role as economic wise man and elder statesman. I'm not sure what he could possibly do at this late date to make up for that.

[Nicholas Beaudrot]

Shorter Greenspan:

I hoped that after cutting taxes, the GOP would cut spending.

I was wrong.

[Fred Hapgood]

I find it hard to picture the political side of the general meltdown, not that I'm denying that there will be one. Everyone here -- everyone! -- agrees that sooner or later the Federals are going to be compelled to raise taxes and/or cut benefits. Obviously this will outrage significant constituencies. Noone in govt. would take such an action unless there was some other constituency hammering away at them, demanding that they do precisely that. Who is that other constituency? Suppose people stop buying US bonds and the govt. starts to fund its commitments through inflation, by "printing money". Suppose the Fed raises interest rates in response (which it will, right?), thus depressing the economy. I don't deny that raising taxes and cutting benefits would be the right thing to do, but is the economic literacy of the country high enough for any serious political force to develop behind the idea? And if not, where does that leave us??

[Kimmitt]

Isn't this completely consistent with a "starve the beast" strategy? Engender enormous deficits, then, when they become absurd, start first privately and then publicly moaning about their excessive size and the necessity of benefit cuts?

[bcampb03]

This kind of grownup talk would be more useful when speaking to Congress or getting in the Cronies face. Telling the French Treas. Sec. and guessing whether John Snow knows it doesn't help much.

[Jim Dandy]

I‘ve been around long enough to become immune to the Orwellian language with which economic policy is discussed among Washington pundits, but this surely takes the cake. From the brilliant mind of Robert D. Novak comes this gem in today’s Washington Post:

“The beleaguered conservatives see all this spending leading inexorably to a tax increase, which would redistribute the tax burden to the disadvantage of the successful and threaten an economic recession.”

I‘ll have to add to my lexicon of great quotes this idea of “redistributing the tax burden to the disadvantage of the successful”!!

[W. Kiernan]

Note that Greenspan was perfectly content while the Bush Adminstration turned a $250-billion annual surplus into a $350-billion annual deficit, so long as the borrowed money went toward a.) slaughtering Iraqis and b.) delivering one huge tax cut after another to Greenspan himself and his social class. But when we're talking about the Federal Govt. handing out tens of billions to flooded-out _workies_ - suddenly he's all "OMG OMG OMG WE'RE OUTA CONTROL!!!1!"

[bakho]

If we returned to revenue collection rates of the Clinton years, there would not be a problem.

[Davis X. Machina]

"If we returned to revenue collection rates of the Clinton years, there would not be a problem."

How about the marginal tax rates in effect on the last day of George H.W. Bush's term in office, adjusted for inflation?

(Me, I'd plump for Eisenehower. By the standards of the gang in the White House, Ike looks like Bakunin....)

[Ron]

Davis - so you'd like the Ike-hikes of rates with the resultant economic slow-down? The one that was turned around by President Kennedy's reduction in marginal rates?

It seems obvious to me that there should be some analysis on optimal rates. Maybe there has been, but it hasn't been reported in the business nor popular press. I think there have been several periods where marginal tax rates were so high they cause capital flight and economic slow-downs (you can't tax yourself into prosperity). Equally, there have been periods following reductions in marginal rates where, due to economic stimulus, the government experienced periods of higher total tax collections.

But maybe average marginal rates have been lowered too much. Maybe there is some optimal level - has anyone tried to figure that out? Of course, the optimal may vary depending on world economic conditions. Mr. DeLong, have you engaged in or are familiar with research in this are?

[Stephen Kriz]

I think the American people should "lose control" and march on Washington with pitchforks and torches and begin carrying out vigilante justice on the criminals in power.

Mark my words - an American "French Revolution" is coming.

EAT THE RICH!!!!

[yesh]

Speaking of grown-up Republicans -- where the heck is Sen. Lugar these days? He sure seems to have clammed up for some reason(s).