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