Editore"s Note
Tilting at Windmills

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September 17, 2007
By: Kevin Drum

GREENSPAN AND THE TRIGGERS....Why did Alan Greenspan support George Bush's tax cuts back in 2001? He says two things in his own defense. First, he was afraid that continuing federal surpluses might eventually dry up the national debt and thus constrain monetary policy. Second, he did his best to argue for "triggers" in the tax bill that would eliminate the tax cuts if the budget went back into deficit.

Do these excuses hold water? Let's turn over the floor to Ron Suskind, who wrote about Greenspan, Bush, Treasury Secretary Paul O'Neill, and the tax cuts in his book The Price of Loyalty:

We're not going back into [deficit], Greenspan said. Paul nodded solemnly. For these two, it was a blood oath....But what happens to the big item, the tax cut, if the surpluses evaporate? he asked. "Triggers," O'Neill said. "A good enough idea, if it can be sold."....O'Neill smiled. "Think you could find a way to mention triggers in one of your upcoming pronouncements?" Greenspan smirked, "Why me?" "Because I thought of it," O'Neill said with a friendly gloat. "That means you have to sell it."

....[In congressional testimony in January, Greenspan] suggested that a future tax cut "could include provisions [that]...limit surplus-reducing actions if specified targets for the budget surplus and federal debt were not satisfied. Only if the probability was low that...initiatives would send the on-budget accounts into deficit, would unconditional initiatives appear prudent."

....[Later] O'Neill made his case for triggers [to President Bush]....The conviviality had burned off. Bush looked at him with the flat, inexpressive stare to which O'Neill had become accustomed. "I won't negotiate with myself," Bush finally said. "It's that simple. If someone comes to me with a plan for this, and they have a significant amount of political backing, I'll sit down with them — talk it out. But until then, it's a closed issue."

....[In May] Greenspan arrived at the Treasury for breakfast with O'Neill. Their secret trigger pact had come up one vote short...."The first big battle is over, really. I think we fought well, we made our points vigorously." Greenspan said that wasn't enough. "Without the triggers, that tax cut is irreponsible fiscal policy," he said in his deepest funereal tone. "Eventually, I think that will be the consensus view."

Nobody wins every battle, and when Greenspan essentially argues that he didn't realize at the time just how hackish the Bush administration was, it's hard not to sympathize. Still, these passages tell us several things:

  • Greenspan and O'Neill, far from being genuinely concerned with the risible idea that the national debt might decline to zero, were troubled mostly by the possibility of the tax cuts forcing the budget back into deficit.

  • Greenspan agreed to publicly "sell" the trigger idea. In the end, and despite flat warnings that his testimony was almost certain to be misunderstood, he did so only in a single cryptic piece of testimony early in 2001.

  • When O'Neill tried to sell triggers to the president, Bush told him directly that he wouldn't consider it unless there was outside pressure to do so.

  • Greenspan declined to apply any pressure via further public statements, despite his strong feeling that "Without the triggers, that tax cut is irreponsible fiscal policy."

I report, you decide. Was Greenspan really the political naif he paints himself as? Or did he know perfectly well what was going on and simply made a decision to stay quiet about it?

UPDATE: Paul Krugman adds:

If anyone had doubts about Mr. Greenspan's determination not to inconvenience the Bush administration, those doubts were resolved two years later, when the administration proposed another round of tax cuts, even though the budget was now deep in deficit. And guess what? The former high priest of fiscal responsibility did not object. And in 2004 he expressed support for making the Bush tax cuts permanent — remember, these are the tax cuts he now says he didn't endorse — and argued that the budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.

Kevin Drum 1:41 PM Permalink | Trackbacks | Comments (28)

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He's a coward.

Posted by: goethean on September 17, 2007 at 1:57 PM | PERMALINK

Greenspan is a villain. He was involved in 1983 to "save Social Security" by raising the payroll taxes. The idea supposedly at that time was that we would intentionally run Social Security surpluses for 20 years and pay down the debt, and then when the baby boomers retired, Social Security would run a deficit, but the deficit would come out of the savings on interest payments on the debt. But after hoodwinking workers into giving up more of their paychecks, he double-crossed them by encouraging Bush's huge taxcuts and huge additions to the federal debt. He was "worried that the debt would be paid off too quickly". My ass. He welshed on his part of the bargain in 1983.

So workers in 1983 were screwed twice by Greenspan: their payroll taxes were increased then, and their retirement benefits were decreased in the future.

Greenspan lied. Social Security is in trouble (to the extent that it is) because Greenspan was a big fat liar.

Posted by: Daryl McCullough on September 17, 2007 at 1:58 PM | PERMALINK

Krugman knows. He's got a great Friday editorial on this stuff.

Posted by: Wendy on September 17, 2007 at 1:59 PM | PERMALINK

Here is one commentator who comes down on Greenspan as hard as possible:


Posted by: LJ on September 17, 2007 at 2:03 PM | PERMALINK

"Get back in there and sell that book Al."


Posted by: ny patriot on September 17, 2007 at 2:07 PM | PERMALINK

He's a whore. He sold his soul AND his integrity for the Randian notions that are at the core of his philosophical orientation. He has no honor left. Where was he when the tax cuts were going so wrong? He never said a thing.

Posted by: POed Lib on September 17, 2007 at 2:10 PM | PERMALINK

Greenspan and O'Neill, far from being genuinely concerned with the risible idea that the national debt might decline to zero, were troubled mostly by the possibility of the tax cuts forcing the budget back into deficit.

Kevin -

Perhaps it's just me, but I always understood Greenspan's concern to be with deficits, not debt -- and that suggestion that he was really concerned about debt was either a misunderstanding or misprint.

Posted by: von on September 17, 2007 at 2:10 PM | PERMALINK

He also appears to have initially given the Bushies some credit for understanding the impact of their recklessness, and keeping it somewhat in check.


Posted by: wishIwuz2 on September 17, 2007 at 2:19 PM | PERMALINK

Hey, you don't think it's possible that Greenspan is our beloved Al, do you? Seems to make about as much sense

Posted by: tomeck on September 17, 2007 at 2:24 PM | PERMALINK

was afraid that continuing federal surpluses might eventually dry up the national debt

Gee, what a terrible occurrence that would be -- having the Baby Boom generation actually pay for the debt they've incurred, rather than foist it off on their children and mine.

Posted by: Gregory on September 17, 2007 at 2:32 PM | PERMALINK

In the cowboy world of Shrub, "Triggers" should only be stuffed and placed in museums.

Posted by: thethirdPaul on September 17, 2007 at 2:34 PM | PERMALINK

The most interesting thing about this isn't whether Greenspan wasn't specific enough about triggers or other limitations on Bush's tax cuts. He would argue that making much more than cryptic statements on fiscal policy could lead to joepardizing the Fed's independence from political pressure down the road. If the Fed chairman is pressuring Congress and the President on fiscal policy there is no reason for Congress and the President not to pressure the Fed on interst rates.

No, the interesting thing about this is how sanguine Greenspan the economist was about the budget surplus of the late 1990s and how long it would last. At this time, his assumptions then -- a continuation of the '90s tech boom, no national emergencies demanding increased government spending, and restraint on normal government spending at a time when the fiscal discipline of the late '80s and early '90s was already relaxing notably -- seem, well, irrationally exuberant. As long as nothing went wrong, surpluses would continue.

Of course, a lot of people felt that way then. Greenspan, though, was a much more experienced economist than most people. He was also the one American who might have slowed the rush back into chronic fiscal irresponsibility if he had gotten the implications of specifically unforseen but generally predictable events for the government's fisc right. He got it wrong, and that rather than any unwillingness to call out President Bush was at the root of his ambiguous position on tax cuts in 2001.

Posted by: Zathras on September 17, 2007 at 2:41 PM | PERMALINK

Anyone in a position of fiscal responsibility in the federal government that cautions against paying down the national debt is a moron or a political coward. Running small deficits for infrastructure and other longer-term investments for the nation has always been acceptable. I don't think this is the kind of thing Greenspan, his protestations to the contrary notwithstanding, had in mind when he whored himself in front of congress.

I'd say "Off with his head," but it's too late now.

Posted by: JeffII on September 17, 2007 at 3:06 PM | PERMALINK

Greenspan: coward, syncophant, and economically blind. Who else in our history can be charged with allowing and supporting TWO bubbles (high tech in 90's and real estate in 00's that were straight-shots to become huge busts?

[spits on AG's still-empty grave]

Posted by: JimPortlandOR on September 17, 2007 at 3:08 PM | PERMALINK

I have to laugh every time I read anyone talking about those old republican traditions of fiscal responsibility and small government.

The republican party has been for big government for almost all of Greenspan's life. They just want it in the form of a gigantic military, a police state, and corporate subsidies.

More recently (past 30 years) they combine that with not wanting to pay for any of it.

Why did it take him most of his life to notice that?

Posted by: jefff on September 17, 2007 at 3:17 PM | PERMALINK

I recently read the Agenda about the setting of ecoomic poily at the beggining of Clinton administration. Then Greenspan cared graetly about tax cuts -- but they were for the middle class not the wealthy. My recollection is that he more or less told Clinton or a higher up on the staff that if a middle class tax cut was enacted he would be forced to raise interest rates. I guess when the tax cut for Greenspan's wealthy buddies it is OK to raise the deficit.

Posted by: Baba Cambridge on September 17, 2007 at 3:20 PM | PERMALINK

Guilty as (Krugman) charged.

There is really something profoundly wrong with all Republicans - it's like they are missing a gene that gives them all a severe personality disorder.

Soul-less, greedy bastards one and all.

Posted by: ESaund on September 17, 2007 at 3:26 PM | PERMALINK

Grrenspan can parse all he wants, but I remember the spring of 2001 and there is no doubt that Greenspan was the primary political cover for Bushco's tax giveaway plan. It's pathetic to hear him try to rationalize his way out of it now. Reminds me of Nader's rationizing his role in handing the 2000 election to Bush.

Posted by: Virginia on September 17, 2007 at 4:24 PM | PERMALINK

Thanks, Virginia, for linking those two! All of Krugman today is worth reading. He reported that Greenspan called him up and was irate over Krugman's calling Greenspan on his tax cut cover, back in '01. Boy, don't mess with Paul.

Posted by: MaxGowan on September 17, 2007 at 4:39 PM | PERMALINK


Posted by: mhr on September 17, 2007 at 5:11 PM | PERMALINK

No representation without taxation.

Posted by: Bob M on September 17, 2007 at 5:38 PM | PERMALINK

When you look at Greenspan's record as a whole (including duing the moderate-Republican economic policies of the Clinton Administration), it's been entirely consistent: Screw the middle class, give the wealthy even more.

Posted by: MaxGowan on September 17, 2007 at 6:07 PM | PERMALINK

Can you imagine being married to this guy?

Mrs Greensap: "What do you want for dinner, dear?"

"I thought I indicated that earlier, when I looked out the window briefly in the direction of the sea."

"So you want fish?"

"Silly woman, of course not! I was looking at the reef, and that rhymes with beef. So I want pork."

"Ok honey, sorry to be so dense."

Posted by: craigie on September 17, 2007 at 7:21 PM | PERMALINK

Apologize for the length, but in defense of O'Neill and to quote NYbooks.com:
"The main virtue of "The Price of Loyalty" tells us about the administration's values and mode of operation.
Let's start at the end—a discussion of economic policy in November 2002, shortly before O'Neill was fired. Remember that 2002 was the year of corporate scandals; for a brief period the revelations of chicanery at Enron, WorldCom, and other pillars of the economy seemed likely to dominate the midterm election. Instead, the administration—after making a few gestures toward corporate reform and grudgingly agreeing to a small increase in the SEC's budget—beat the drums of war, and drowned the issue out.
Still, officials remained concerned about a sluggish economy. But what was the cause of that sluggishness? The President, according to his secretary of the Treasury, had a simple answer: "SEC overreach." That is, those nasty regulators, in their attempt to crack down on corporate malfeasance, were making executives and investors nervous, depressing the economy. Here's how Suskind describes the moment:

O'Neill couldn't quite believe what he was hearing—SEC overreach? No wonder the White House had backed off from the toughest medicine for crooked executives and eventually ceded the corporate governance debate to Congress. How, though, could the President believe that the largely overwhelmed SEC had any significant effect on the vast US economy?
Kevin Phillips could, of course, have told him: Bush—whose own business career had involved some remarkably Enron-like moments—was revealing his instinctive, indeed inbred sympathy for corporate insiders, and his antipathy toward anyone who might try to enforce accountability.

Aside from the report of Bush's amazing outburst, what we learn from Suskind's description of that meeting is that, in private, top administration officials conceded the very points that they vehemently denied when responding to outside critics. They knew that they were being fiscally irresponsible. "The budget hole is getting deeper," warned budget director Mitch Daniels. "We are projecting deficits all the way to the end of your second term." (And this was before the 2003 tax cut.)

They also knew that their policies heavily favored rich people—indeed, in an uncharacteristic moment Bush himself seemed uneasy over the tilt, asking, "Didn't we already give them a break at the top?" And when Bush asked, "What are we doing on compassion?," no one answered.

But what they said in public was the exact opposite. In private Bush might worry that his tax plan was too friendly to the rich; in public he insisted that "the vast majority of my tax cut goes to the bottom of the economic spectrum." In private Dick Cheney told O'Neill that "Reagan proved deficits don't matter." In public he described himself as a "deficit hawk."

So Phillips is right: the Bush administration is deeply hypocritical with regard to its core policies; what it says is at odds not only with what it does, but with what it really thinks. But then what does drive its policy decisions?
Let's flash back to what John DiIulio told Suskind in late 2002:

There is no precedent in any modern White House for what is going on in this one: a complete lack of a policy apparatus. What you've got is everything—and I mean everything—being run by the political arm. Everything—and I mean everything—is being run by the Mayberry Machiavellis.
O'Neill confirms DiIulio's picture, with a vengeance. Consider, for example, what may in the long run be considered the administration's most fateful decision: to abandon the Kyoto Protocol and, in effect, abandon any attempt to face up to global warming. O'Neill's account makes it clear that nobody even tried to ask what the facts were, what the tradeoffs might involve. Instead, "energy concerns and the thinly supported jeremiad by industry lobbyists had eclipsed considerations about action on global warming. Period." Or as O'Neill summarized this approach to policymaking, "The base [i.e., Bush's Republican political base] likes this and who the hell knows anyway."

Or take the steel tariff. The decision to impose a tariff on steel imports was a terrible one in every way one can think of. It was bad for the economy; it was obviously illegal under international law. It squandered US credibility on trade issues; it was a clear betrayal of the administration's own rhetorical commitment to free trade and free markets. But throwing steel-producing regions a bone might—just might—yield some small political gains.

The Clinton administration refused to impose a steel tariff even during the 2000 campaign; had it betrayed its principles, West Virginia might have gone to Al Gore, who would now be in the White House. When the issue arose again in early 2002, Bush was still immensely popular. "If you can't do the right thing when you're at 85 percent approval, when can you do the right thing?" asked one official. But politics prevailed, and the tariff went through. (The tariff was later rescinded, after the World Trade Organization—predictably—ruled that it violated international law. But the damage was done: US credibility on trade issues had been damaged severely. Partly because of this loss of credibility, international trade negotiations—supposedly an administration priority—have stalled.

What emerges from Suskind's book is a picture of an entirely cynical administration—much more cynical than Nixon's, in which the corruption was localized, and large parts of the policy process continued to be run by serious, even idealistic people. (Old hands at the Environmental Protection Agency describe the Nixon administration as a golden age.) Under Bush, it seems, political rhetoric bears no relation to reality—what officials say has nothing in common with what they do, or what they think. And policy decisions are driven almost entirely by politics, by what the political arm thinks will play well with "the base."

But in that case, what's it all about? If everything Bush and his officials do is political, what is that they want to do with their power?

Old-line Republicans that I know cling to the belief that the Machiavellianism is only temporary, that it's embraced in service to a higher goal. Once the 2004 election is over, they say Bush will show his true colors as an idealist, someone who genuinely believes in small government and free markets.

But if Phillips is right—and I think he is—there is no higher goal. Bush's motivations are dynastic—to secure his family's rightful place. While he may have some policy biases—like that "instinctive policy fealty" to the investment business—policy is basically there to serve the acquisition of power, and not the other way around.

According to people who observed him in Texas, Karl Rove is a devotee of Machiavelli, and particularly of The Prince. And as Phillips points out, "Twenty-first-century American readers of The Prince may feel that they have stumbled on a thinly disguised Bush White House political memo." For Machiavelli's book was all about how to gain and hold power, not about what to do with it.

So what is the state of the union? Let Phillips have the last word:

The advent of a Machiavelli-inclined dynasty in what may be a Machiavellian Moment for the American Republic is not a happy coincidence.... National governance has, at least temporarily, moved away from the proven tradition of a leader chosen democratically, by a majority or plurality of the electorate, to the succession of a dynastic heir whose unfortunate inheritance is privileged, covert, and globally embroiling."

Posted by: consider wisely:want to expose it more on September 17, 2007 at 8:05 PM | PERMALINK

Greenspan is a jerk. He's the one who got rates down to 1%... not seen since the 50's. That was obviously insane.

I don't know why Diane Sawyer stays with him.

Posted by: Clem on September 18, 2007 at 6:40 AM | PERMALINK

That would be Andrea Mitchell. Diane Sawyer is married to Mike Nichols. And it's for the power.

Posted by: MaxGowan on September 18, 2007 at 9:02 AM | PERMALINK

When Greespan approved GWB's initial round of tax cuts, one of, and maybe THE most important reason he gave, had to do with some negative effect of paying off the national debt too quickly! Somebody google around and find it - biggest bunch of crap you've ever read.

Posted by: Doug Latto on September 18, 2007 at 3:27 PM | PERMALINK

Alan Greenspan: eating his cake and having it too

Posted by: The Fool on September 18, 2007 at 5:36 PM | PERMALINK



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