Now he tells us. Alan Greenspan has come out from behind the cloud of gas where he had hidden himself for the past couple of decades to say in public what he should have said years ago when it might have mattered.
In his book, Mr. Greenspan complains that the Bush administration paid little attention to the conservative idea of fiscal constraint, and the Republicans in Congress were even worse. “They swapped principle for power,” he writes. “They ended up with neither.”
Mr. Greenspan understood that the Bush administration’s treasury secretaries were capons, but why did Mr. Greenspan snip off his own political testicles? As chairman of the Federal Reserve Board, he did not serve at the president’s pleasure. Mr. Bush could not fire him. So there was Greenspan, the one official concerned with economics who was in a position to talk but kept his mouth shut as debt mounted.
Given Mr. Greenspan’s adoring business press and his demigod status with politicians of whatever stripe, there was a solid chance that he could have stopped or at least mitigated the grotesque Bush tax cuts. Now he comes along to blame Mr. Bush and the circle of crackpots Mr. Bush surrounded himself with, but he might also have blamed himself.
His espousal of a balanced budget and pay-as-you-go government was not a questionable theoretical proposition. For the eight years of the Clinton administration he had been a successful collaborator in such a policy. He admired Clinton’s two effective treasury secretaries, Robert Rubin and Lawrence Summers. He knew it could be done, and yet he kept his yap shut when he should have been howling to high heavens.
Mr. Greenspan could have done more than howl. He could have taken corrective action. A central bank, at least to some extent, can counterbalance profligate borrowings by shrinking the money supply and pushing interest rates up. Had he done so, Mr. Greenspan would have heard howls aplenty from the White House and a Congress merrily in the act of cutting the taxes of the rich.
For years Mr. Greenspan confined his public utterances on the worsening housing bubble to polysyllabic imbecilities, never calling it a bubble, though it was he who was blowing the air into it, preferring instead the word “froth.”
On his book publicity tour Mr. Greenspan tells the Financial Times that froth “was a euphemism for a bubble,” explaining, in case we don’t get it, that “all the froth bubbles add up to an aggregate bubble.” His aggregate bubble, which he could have punctured long since, is threatening to become to our domestic scene what the Iraqi war is abroad.
This guy is still a hokum-meister. First he writes in his book, “We were willing to chance that by cutting rates we might foster a bubble, an inflationary boom of some sort, which we would subsequently have to address. … It was a decision done right.” But then The Wall Street Journal writes that “[Greenspan] attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates.” This is hardly better than dada economics. Sure, blame the speculation-driven housing debt on the late Boris Yelsin.
After having put the responsibility for the housing mess on the death of communism, Mr. Greenspan next takes on the colors of some sort of liberalism by declaring that “the benefits of broadened home ownership are worth the risk.” In other words, without the bubble lower-income people would not have had a chance to own a home of their own. But did they really have such a chance?
If they “bought” their homes on such disadvantageous terms that they are unable to keep them, that is a fine kind of home ownership. Though the actual number is unknown, hundreds of thousands of lower-income families bought homes on a no-money-down basis through ruinous adjustable rate mortgages. It would be closer to the truth to say they did not buy these houses, but merely rented them at extortionate prices.
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