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Greenspan's Memoirs: Passing the Buck?
by
findingDulcinea Staff
The former federal reserve chairman’s account of his tenure excoriates the Bush Administration; critics and analysts greet its allegations with complacency or counteraccusation.
30-Second Summary
On September 17, with uncanny timing—the day before the Federal Reserve cut interest rates .5 percent in response to the mortgage crisis—Alan Greenspan’s memoir appeared in bookstores across the nation.
Greenspan served as chairman of the Fed from 1987 to 2006. During most of that period, the economy thrived. The United States experienced only 16 months of recession. Greenspan’s memoir, “The Age of Turbulence,” arrives at a point when that era of fiscal robustness may be coming to an end.
The media has focused on the book's highly critical account of President George W. Bush's economic record. Greenspan argues that the policies and political process instituted under President Bush helped bring about the economy’s current troubles.
According to CNN, Greenspan identifies two key problems in the present administration: the president neglected to exercise his veto to curb congressional spending; and the White House sidelined the treasury, taking sole command of the economy.
At The Wall Street Journal and The New York Sun, critics have responded by pointing to the former Fed chief’s cuts in interest rates between 2001 and 2004 as an important contributory factor in the current mortgage crisis.
Vice President Dick Cheney addressed his former colleague's complaints with an op-ed in the Journal defending President Bush’s tax cuts. Cheney argued, counter to Greenspan’s claims, that the cuts stimulated the economy after 9/11 and, as a result, tax revenue “is now above the 40-year historical average.”
Greenspan concludes his book with some stark forebodings: slower growth, rising inflation, and even social unrest prompted by economic inequality.
Greenspan served as chairman of the Fed from 1987 to 2006. During most of that period, the economy thrived. The United States experienced only 16 months of recession. Greenspan’s memoir, “The Age of Turbulence,” arrives at a point when that era of fiscal robustness may be coming to an end.
The media has focused on the book's highly critical account of President George W. Bush's economic record. Greenspan argues that the policies and political process instituted under President Bush helped bring about the economy’s current troubles.
According to CNN, Greenspan identifies two key problems in the present administration: the president neglected to exercise his veto to curb congressional spending; and the White House sidelined the treasury, taking sole command of the economy.
At The Wall Street Journal and The New York Sun, critics have responded by pointing to the former Fed chief’s cuts in interest rates between 2001 and 2004 as an important contributory factor in the current mortgage crisis.
Vice President Dick Cheney addressed his former colleague's complaints with an op-ed in the Journal defending President Bush’s tax cuts. Cheney argued, counter to Greenspan’s claims, that the cuts stimulated the economy after 9/11 and, as a result, tax revenue “is now above the 40-year historical average.”
Greenspan concludes his book with some stark forebodings: slower growth, rising inflation, and even social unrest prompted by economic inequality.
Headline Links: Policy v. Principle, and Greenspan's predictions
Greenspan reserves his severest criticism for Bush’s reluctance to veto congressional bills, which he thinks led to excessive federal spending, and the White House’s domination of economic policy, which sidelined the treasury.
Source: CNN
Greenspan has sought to fend off the accusation that he contributed to the housing bubble by cutting interest rates between 2001 and 2004. In the words of The New York Times, Greenspan has said that reduced interest rates were necessary “to fend off the recession of 2001 and what many economists thought was a real risk of the kind of ‘deflation’ … that had plagued Japan.”
Source: The New York Times
A New York Sun story on Greenspan’s book concludes with a summary of its prediction’s for the next 20 years, a forecast that is “filled with foreboding,” writes the Sun. The former Fed chief sees lower growth rates on the horizon and an increasing threat of inflation. He warns that the “double-figure” interest rates that may be a necessary medicine may not be administered properly as the Federal Reserve is increasingly influenced by politicians, who want to keep rates low. Looking to the broader picture of American society, Greenspan warns also that the education system has to be improved “to reverse a quarter century of increases in income inequality.” A failure to do so could result in “disaffection, breakdowns of authority, even large-scale violence … jeopardizing the civility on which growing economies depend.”
Source: The New York Sun
Reactions: Vice President Cheney and President Bush
Vice President Dick Cheney steps onto the Wall Street Journal podium to defend President Bush’s economic record, in a respectfully phrased rebuttal to Greenspan's memoir. Cheney sides with Greenspan in believing that the federal government spends too much and that Congress has failed to behave prudently. However, the vice president takes issue with one aspect of Greenspan’s argument; Cheney stands by President Bush's tax cuts. He writes that “in a time of unprecedented challenge,” after the 9/11 terrorist attacks and in a time of recession, the cuts “resulted in a shallower recession, a faster recovery, and a platform for growth.”
Source: The Wall Street Journal (paid subscription may be required)
President Bush and his tax cuts
In a Fox interview with President Bush (not aired at time of writing) the president responds to Greenspan’s accusation that his administration’s tax cuts were irresponsible, according to The Wall Street Journal. According to Bush, tax cuts helped “in dealing with the deficit because the growing economy yielded more tax revenues, which allowed us to shrink the deficit.”
Source: The Wall Street Journal (paid subscription may be required)
A Wall Street Journal blog reports on what the chairman of the Congressional Budget Office, Peter Orzsag, had to say about the effects of the administration’s tax cuts. Orszag's conclusion was that “the stimulative [sic] effect … has worn off and the supply-side benefits are ‘small.’” Of particular relevance to Bush’s recent statement to Fox is the CBO’s expectation that “this year’s deficit [will be] between $150 billion and $200 billion, implying that without the tax cuts, the budget would probably be in surplus this year.”
Source: The Wall Street Journal (paid subscription may be required)
The chairman of the CBO, Peter Orszag, expressed his views on the tax cuts in a letter the House Budget Committee chairman, John Spratt (D–S.C.), which is available online.
Source: The Chairman of the Congressional Budget Office
The chairman of the CBO, Peter Orszag, expressed his views on the tax cuts in a letter to the House Budget Committee chairman, John Spratt (D–S.C.), which is available online.
Source: Peter Orsz
Opinion: Economic analysis and book reviews
Greenspan's economics
Daniel Gross interviewed Greenspan and discovered that, in the process of writing his memoir, the former Fed chief had drawn some interesting conclusions about the part that human nature plays in shaping an economy. Gross writes that Greenspan believes that economic “bubbles” are only explicable in terms of an innate human tendency. People are drawn instinctively into what Greenspan calls “cumulative exuberance,” where financial behavior ceases to be rational. When the bubble starts to burst, “the result is a dramatic 180-degree switch from exuberance to fear.” Greenspan has also concluded the maximum growth of an economy over a long period of time cannot exceed 3 percent, because “that’s the pace at which human beings operate.”
Source: Slate
Robert J. Samuelson writes that instead of “The Age of Turbulence,” a more fitting title for Greenspan’s book would have been “The Age of Tranquility." In his nearly two-decade-long tenure at the Fed, Greenspan “presided over one of the greatest surges of American prosperity ever.” His secret is, according to Samuelson, a consequence of both luck and skill. But the foundation of this boom period is a fall in inflation from 13.3 percent in 1979 to 1.9 percent in 2003.
Source: The New York Sun
A New York Sun editorial of September 17 stated that in Greenspan's memoir “everyone else but the family dog” is blamed “for the problems of the economy.” The author implies that having departed from the Fed as things turned sour, it is all too easy for Greenspan to lay the responsibility for fiscal problems at the feet of anyone but himself: “Mr. Greenspan left the greenback very much weakened at the start of Mr. Bush’s term of office. To which one can only say, wait until Mr. Bush sits down to write his assessment of Mr. Greenspan.”
Source: The New York Sun
The book reviews
The Wall Street Journal’s review of Greenspan’s book detects a measure of self-exculpation on the author’s part. “Nowhere in this book does Mr. Greenspan own up to his role of underestimating the severity of the credit troubles of 1990, or of cheering on the tech-stock frenzy in 1998–2000,” writes James Grant. During the “mortgage frolics” of 2004, argues Grant, Greenspan neglected to encourage caution among homeowners, instead advising “that they consider an adjustable-rate model. He who set the rates got it backward.” As for the readability of the book, Grant judges that whether “admirers or detractors” its audience will not have to “stifle a yawn” in the book’s first half, which deals with with the economist’s life and loves. However, “few will remain alert while toiling through the public-policy ruminations” that make up the next 200 pages.
Source: The Wall Street Journal (paid subscription may be required)
Greenspan describes Clinton and Nixon as the smartest presidents he ever worked with, and he has words of praise for Reagan and H.W. Bush, as well, according to The International Herald Tribune. “Only the current president, George W. Bush, goes without receiving credit for a single significant accomplishment.” The Tribune review notes that the former Fed chairman “does not easily admit error,” but whatever his faults he “may have had a better feel for the ups and downs of the postwar American economy than anyone else."
Source: The International Herald Tribune
Although the economic predictions in “The Age of Turbulence” are unlikely to lift a reader's spirits, British newspaper the Independent finds some pleasure in the book’s style. Greenspan’s memoir is “at times droll and, above all, written in clear and finite sentences.” On the whole, it “makes vastly more enjoyable reading than the impenetrable Fedspeak which he used to mystify the markets.” The Independent notes Greenspan’s apparent magnanimity in assessing his relationship with the first president Bush. H.W. Bush blamed his failure in the 1992 election on Greenspan's refusal to cut interest rates. In return, Greenspan has only regret for the elder Bush's electoral failure. “His loss,” writes Greenspan, “reminded me of how voters in Britain had ousted Winston Churchill immediately after World War II.”
Source: The Independent
Related Links: Fed cuts interest rates, Greenspan and Ayn Rand
On September 19, the Federal Reserve cut interest rates for the first time in four years in order to forestall the worst effects of the housing crisis. The half percent cut was a boon to Wall Street, and a bigger cut than many analysts had predicted. News that consumer spending and producer pricing were down reduced the risk of rapid inflation and helped the Fed towards its decision on the expected cut.
Source: The Economist
One of the influential figures in Greenspan’s life is the novelist Ayn Rand, author of “The Fountainhead” and “Atlas Shrugged.” A Russian émigré, Rand developed a philosophy of enlightened selfishness, called “objectivism,” that was an ethical extension of free market capitalism. Greenspan met Rand when he was 25, and later married one of Rand’s inner circle, which was known as the Collective.
Source: The New York Times
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