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Greenspan Has Left the Building

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BERKELEY – The first time I went to Washington, DC, as an adult was in 1993, when I arrived to work for President Bill Clinton in the Treasury Department. Back then, America urgently needed to rebalance the federal budget to rein in explosive growth in the debt/GDP ratio; to overhaul America’s extraordinarily expensive and inefficient health-care system; and to begin to deal with global warming via a slow ramp-up of a carbon tax.

Beyond these three immediate issues were long-run policy challenges: updating the country’s pension system to deal with an aging population and the decline of defined-benefit pensions; improving the education system so that more people would bear the risk of pursuing higher education; and reversing the erosion of America as a middle-class society.

None of these goals (perhaps with the exception of the last one) were partisan issues. The long-run deficit, health-care financing, and global warming, no less than securing retirement income and enabling educational opportunity, were issues on which bipartisan progress and agreement should have been easily attained. Yet we Clintonites received absolutely no cooperation from either Republican officeholders or Republican policy intellectuals.

Figures like Senators Pete Domenici and Alan Simpson, who talked a good game about the long-run deficit, never met a budget-busting Republican program that they would oppose or a deficit-reducing Democratic initiative that they could support. Economists who, under Presidents Ronald Reagan and George H. W. Bush, talked such a good game about excessive tax burdens and the importance of balanced budgets went very quiet after Clinton took office in January 1993, and stayed quiet after January 2001, when George W. Bush’s administration dismantled so much of what the Clinton administration had accomplished.

But back in 1993 there was one exception – one senior Republican officeholder and policy intellectual who did not forget his policy commitments of earlier years: US Federal Reserve Chairman Alan Greenspan. For Greenspan, putting the long-run financing of America’s federal government on a sound footing was an important and bipartisan goal, and in 1993-1994 he was willing to take monetary-policy risks to boost the chances of achieving it.

The Fed, in Greenspan’s view, had a responsibility not only to fight inflation but also to create a prosperous, entrepreneurial society, and he sought to achieve that dual mandate – with high employment as important as stable prices – during the high-tech boom of the late 1990’s. Unique among his Republican peers, after 2001 he spoke – quietly in public, but loudly in private – against the Bush administration’s feckless fiscal policies.

That is why, despite the damage that his reputation suffered in the wake of the 2008 financial crisis, Greenspan retains enormous credibility among all those who hope to see rational economic policy in America. If there are going to be sensible negotiating partners on the Republican side, he should be at their head.

That is why I find his new book, The Map and the Territory, so disappointing. Greenspan portrays the US Department of Housing and Urban Development and its affordable-housing goals as playing a big role in causing the 2008 crisis. Moreover, he claims that the Dodd-Frank financial-reform legislation is a large factor holding back the recovery. Likewise, he argues that the Earned Income Tax Credit – enacted in 1975 under Republican President Gerald Ford and expanded greatly under Reagan – is a threat to Americans’ moral fiber. Too much of the book reads, as the Washington Post’s Steven Pearlstein put it, like it was lifted from the Web site of Mitt Romney’s 2012 presidential campaign.

The six problems that confronted me and others when we arrived in Washington in 1993 have not been solved. The long-run fiscal situation remains discouraging, if not as dire as we feared it would become. Health-care financing remains a mess, even if we have considerable reason to hope that Obamacare has started to address the problem. And we have made no progress on global warming, preserving a middle-class society, or improving the education system to make equality of opportunity a reality. Nor have we dealt with the likely shortfall of pension income and assets in an aging America.

But that is not what Greenspan sees. For him, all of these problems boil down to a simple question: “What type of society do we wish to live in?” And the choice, in his view, is equally simple: either “a society of dependence” or one based on “self-reliance.”

That is not an analysis; it is a sound bite. At a time when America desperately needs insight and ideas, Greenspan gives us only partisan bludgeons. That is bad news for those of us who would like to see an effective, technocratic economic-policymaking process emerge in Washington. We must somehow come to grips with the fact that we no longer have negotiating partners on the Republican side.

J. Bradford DeLong, a former deputy assistant secretary of the US Treasury, is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.

Copyright: Project Syndicate, 2013.

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