Greenspan Has Gone From
'Maestro' to Partisan
The Washington Post
Some Democrats Say Greenspan Has Gone From 'Maestro' to
Partisan
By Dana Milbank and Nell Henderson
Washington Post Staff Writers
Saturday, March 5, 2005; Page A01
Questioning the wisdom of Alan Greenspan in political
Washington is akin to challenging the integrity of the pope in
Rome, so figures in both parties agreed yesterday that the top
Senate Democrat's description of the Federal Reserve Board
chairman as a "political hack" was a blunder.
But Democrats said the accusation by Sen. Harry M. Reid
(D-Nev.) reflected a real frustration in the minority party with
Greenspan. Even before Reid's attack, Democrats say, they have
been changing their view of Greenspan from one of an
above-politics wise man to the Republican partisan he had been in
the 1960s and '70s.
Rep. Rahm Emanuel (D-Ill.): The Federal Reserve chairman "took
the moat down" that isolated the Fed from political
discussions.
In Democrats' view, Greenspan's endorsement of President
Bush's tax cut in 2001 reduced the Fed chairman's standing from
when he was hailed by both sides in the 1990s as the "maestro" of
a healthy economy. Then, last week, Greenspan urged changes to
Social Security "sooner rather than later," private retirement
accounts and a restructured tax code -- siding with Bush in each
case. The White House pointed to this as nonpartisan validation;
Democrats cried foul.
Rep. Rahm Emanuel (D-Ill.), who worked with the Fed chairman
as a Clinton administration official and in Congress, said
Greenspan has been "unbelievably effective" at the Fed but he
does not forgive Greenspan for flashing "a green light" to tax
cuts that contributed to large deficits. "There's a moat around
the Fed that says he doesn't get involved in political
discussions," Emanuel said. "He took the moat down."
The frustration has surfaced in congressional hearings. At the
Senate banking committee last month, Sen. Paul S. Sarbanes
(D-Md.) said that in 2001 Greenspan had "taken the lid off the
punch bowl" by endorsing Bush's tax cuts. "And now we've managed
to transpose our economic outlook from this projection of over $5
trillion in surplus to almost $4 trillion in deficits."
At a hearing on the House side, Rep. Barney Frank (D-Mass.)
implicitly scolded Greenspan for exceeding his role, saying "the
question of private accounts is an ideological one."
Democratic strategists say Greenspan, who turns 79 on Sunday
and plans to retire in January, is newly vulnerable. "It is about
time Democrats stopped treating him like he was an untouchable,"
said Chris Lehane, a campaign adviser to Democratic presidential
nominees Al Gore and John F. Kerry. And Marshall Wittmann of the
Democratic Leadership Council said Greenspan has "returned to his
Ayn Rand roots" in recent times, referring to his work for a
publication affiliated with the libertarian philosopher in the
1960s. "The Fed chairman is the closest thing in Washington to a
deity. At least with Democrats, he no longer has that deity
status. He's now viewed as a partisan figure."
It was not always this way. Democrats were grateful to
Greenspan in 1992, when Republicans blamed the defeat of
President George H.W. Bush on the Fed's refusal to drop interest
rates more quickly. Greenspan's support was critical to winning
passage of President Bill Clinton's 1993 deficit-reduction budget
proposal, which included tax increases, with no GOP votes.
Greenspan, who served as an economic adviser to Richard M.
Nixon and Gerald R. Ford before being appointed Fed chairman by
Ronald Reagan in 1987, was a frequent ally of Clinton. He worked
closely with the Clinton economic team in crafting responses to
financial crises. In 1998 he helped Clinton block tax cuts, and
in 2000 he praised Congress and the White House for reducing
debt.
But after Bush became president in 2001, Greenspan sent a
different message: His support became a key influence in securing
passage of Bush's tax cut. Greenspan told the Senate then that it
was likely "that sufficient resources will be available to
undertake both debt reduction" and tax cuts. Greenspan suggested
that tax cuts could be automatically canceled if surplus
projections proved wrong, but the lawmakers ignored that
idea.
Democrats were further infuriated that, even after the budget
went into deficit, Greenspan repeatedly supported making the
temporary tax cuts permanent -- one of the Bush administration's
top economic policy goals. He favored cuts in spending, including
future Social Security and Medicare benefits.
And, after repeatedly invoking the bond market as a reason to
reduce government borrowing in the 1990s, he rejected Democratic
arguments that borrowing to create private retirement accounts
would roil the bond market. Greenspan said last week that there
is no way to know how interest rates would be affected by the
borrowing required. Therefore, he said, Congress should try
them.
Greenspan, who declined to respond to Reid, has at times been
unhelpful to Bush by complaining about deficits. But the White
House has gleefully pointed to Greenspan's validation in recent
days. "You all heard testimony from Chairman Greenspan this
morning," press secretary Scott McClellan said at Wednesday's
briefing. The next day, McClellan said that "we appreciate
Chairman Greenspan's comments today" on tax reform. He again
cited Greenspan's view that the Social Security problem "really
begins to hit in 2008" and said "that's why we need to act
now."
The Republican National Committee issued a news release
seeking to bolster Greenspan's standing as an above-politics
figure. It included quotations from Clinton and half a dozen
Democratic senators praising the chairman. "The preponderance of
Senate Democrats have always supported Greenspan, unlike Senator
Reid," said GOP strategist Charles R. Black Jr.
On CNBC yesterday, Bush's budget director, Joshua B. Bolten,
defended Greenspan as "all substance," not politics.
But some economists say Greenspan's tendency to offer opinions
on fiscal policy endangers the Fed's political independence.
Mickey Levy, chief economist at Bank of America, said "there is a
concern that Greenspan sets a bad precedent for the next chairman
to think he or she has the liberty to delve into fiscal
policy."
Even some of Greenspan's colleagues at the central bank have
long complained that he should stay out of debates over federal
tax and spending decisions, or fiscal policy. They say the Fed's
independence from political pressure is key to its credibility in
financial markets. "I believe the chairman shouldn't insert
himself and the Fed into political debates over the direction of
fiscal policy," former Fed board member Laurence H. Meyer, who
served under Greenspan, wrote in a recent book about his time at
the central bank.
Greenspan still enjoys broad respect. Last April, a Gallup
poll found that the public had more confidence in Greenspan's
economic advice than in that of Bush or congressional
Democrats.
It may be a sign of waning influence that Greenspan's remarks
about Social Security accounts have not transformed the debate
the way his endorsement of tax cuts did in 2001. A GOP leadership
aide said that "it was helpful to our side" but added that "it
was not dynamic-changing."
|