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What The Media Tell Americans About Free Enterprise

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Thursday, January 31, 2001

Volume 9, Number 2

Mediaís Anti-Tax Cut Bias Seen In New Attitude Toward Greenspan

Howís this for balance? The top "Business" section story in the January 27 Washington Post reported that "Federal Reserve Chairman Alan Greenspanís decision to support broad-based tax cuts and privatization of Social Security ó two key political goals of President Bush ó threatens to spark a tax-cut frenzy on Capital Hill and has left many Democrats fuming." Well, thatís basically true, although MediaNomics wonders whether the Post has ever been so worried about a congressional "spending frenzy."

The really amazing aspect of the article, written by staff writers Glenn Kessler and Steven Pearlstein, is that while it is ostensibly a news story, it only included the views of Democratic members of Congress, ex-Clinton administration officials and other tax cut opponents who are now all critics of the Fed chairmanís new position. A quick summary:

  • Rep. John M. Spratt (D-S.C.), the senior Democrat on the House Budget Committee, complained to Kessler and Pearlstein that Greenspanís pro-tax cut testimony "certainly has set back our position."

  • Sen. Byron Dorgan (D-N.D.), snipped that "Mr. Greenspan sauntered up to the Hill and wasnít bashful about putting the Fed smack in the middle of the most controversial political issue of the day."

  • Rep. Robert Matsui (D-CA), warned that "weíre gonna see this thing [tax cutting] get out of control now, and Greenspan has contributed to that."

  • Former Clinton White House aide Gene Sperling criticized Greenspanís testimony as "unfortunate and ill-advised."

  • Robert Reischauer, who headed the officially non-partisan Congressional Budget Office back when the Democrats controlled Congress, likened Greenspan to an irresponsible parent who tells their child "you can have your dessert and you better start eating now or it will be spoiled."

  • Former Clinton Labor Secretary Robert Reich argued that Greenspan "risks politicizing his office by venturing so far into the political realm, putting the prestige of his office at the service of a particular set of political judgments and values."

While the story included complaints of these six Greenspan critics, readers were offered no supportive comments from congressional Republicans, Bush administration officials, pro-tax cut Democrats, or any of the multitude of conservative economic experts who agree that projections of several trillion dollar surpluses over the next few years provide ample opportunity for sizable tax rate reductions.

Through their selection of sources and their own narrative, Kessler and Pearlstein pushed the idea that Greenspanís testimony was rooted in political calculation, not economic analysis. Recalling the similarly supportive comments that the Fed chairman had offered after the newly-inaugurated Bill Clinton offered his economic plan back in Ď93, the Post writers asserted that "eight years ago, Greenspan was coming to the rescue of a President who had agreed to pursue a politically difficult path and faced strong opposition from Greenspanís fellow Republicans. This year, some wonder why Greenspan felt the need to wade into this debate at all."

When Greenspan was perceived as an opponent of large tax cuts, the media adored him. On December 18, ABCís Diane Sawyer effusively praised the Fed chairman, whom she said "has already expressed skepticism about the $1.3 trillion tax cut and about privatization of some parts of Social Security." Back then, according to Sawyer, Greenspan was the man "whose footsteps make the markets tremble and who has been central, of course, in managing the economic boom of the last eight years. He transcends political parties."

Now, the once transcendent Greenspan is called a traitor. Liberal economist Paul Krugman, a regular New York Times columnist, penned a January 28 piece headlined "Et Tu, Alan?" in which he questioned Greenspanís honesty. "When a man who is usually a clear thinker ties himself in intellectual knots in order to find a way to say exactly what the new president wants to hear, it's not hard to guess what's going on," Krugman wrote. "But it's not a pretty sight."

The underlying bias of all of these complaints is that big tax cuts are always bad; thus, opponents of such tax cuts are acting responsibly, while supporters are either craven politicians or fools. Principled supporters of tax rate reductions arenít usually welcomed into the mediaís debate. Thatís one reason why some in the press are getting tough with Greenspan ó the mediaís previous applause for "The Maestroís" economic brilliance make his endorsement of tax cuts hard to explain away.

The actual text of Greenspanís remarks revealed one possible reason why liberals, who presumably would normally want to expand the role of government through various spending schemes, might be willing to tolerate unchecked surpluses. The Fed chairman pointed out that, at the pace set by current policies, all of the federal governmentís outstanding debt would be retired within just a few years. That raises the prospect that a practically debt-free U.S. government would begin accumulating private assets such as stocks and corporate bonds as a means to store assets.

"I believe, as I have noted in the past, that the federal government should eschew private asset accumulation because it would be exceptionally difficult to insulate the governmentís investment decisions from political pressures," Greenspan stated. Put another way, a government that owned stocks and corporate bonds would own companies ó and gain a profound new power over the private sector. Imagine how differently the health care debate in 1993 and 1994 would have unfolded had the federal government headed by Bill and Hillary Clinton owned substantial portions of major pharmaceutical companies and HMOs.

Writing in the January 29 Wall Street Journal, economists Kevin Hassett and Glenn Hubbard estimated that, if rising surpluses remained unchecked, "the U.S. government could own about one-fifth of all domestic equities by 2020."

"Allowing the government to own that much of the private economy is an invitation to unbounded mischief," they continued. "Firms will lobby to be put on the list of acceptable investments; those firms or assets left off will suffer hardship. Calls to sell firms that arenít Ďgreení or that fail to pass litmus tests will become the latest in political lobbying."

What Hassett, Hubbard and Greenspan are warning of is a fundamental and potentially dangerous shift in the relationship between the private and public sectors, but such a scenario can be avoided if the governmentís appetite for tax dollars is curtailed. Thatís a key reason why the Fed chairman has started promoting tax cuts, and one reason why the mediaís symphony of support for "The Maestro" suddenly came to a halt.

ó Rich Noyes



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