Much of the discussion surrounding Greenspan's new book has centered on his effort to disassociate himself from President Bush's tax cuts. Greenspan claims that he had made his support contingent on maintaining a budget surplus. Of course, Greenspan’s qualifications were not widely reported at the time, the coverage focused solely on his approval of the Bush plan. Greenspan knew how his comments were being reported and certainly could have taken steps to correct any misimpressions if he saw a need. It is also worth noting that Greenspan’s argument for the tax cut did not make any sense, given what he knew about the economy at the time. Greenspan claimed that he was worried that we would pay off the national debt too quickly and then the government would be forced to buy private assets like stocks and bonds. Since he didn’t want the federal government to own stocks and bonds, he argued that it was better to slow the rate at which the debt was paid off. Of course the reality, which Greenspan recognized at the time, was that the surplus projections in 2001 were ridiculous. The stock crash was throwing the economy into a recession. The crash itself would cost the government close to $600 billion in lost capital gains tax revenue over the ten-year budget horizon from 2001 forward. The coming recession would also drastically reduce, if not eliminate, the surplus even without a tax cut. Greenspan knew that there was a stock bubble, and presumably by January of 2001 he recognized that it was finally bursting. This meant that he could not have really believed at the time that there was a risk that the government actually would see the large surpluses that were projected, and therefore he could not have really been concerned that the debt would be paid off too quickly. In short, the line about paying off the debt too quickly was simply an excuse that Greenspan gave for supporting President Bush’s tax cut. It would be appropriate to mention this fact in the accounts of Greenspan’s book.
--Dean Baker
