Remember When Republicans Accused Greenspan of Political Favoritism?
Last summer, Federal Reserve Chairman Ben Bernanke testified that if Congress did not act to spur the sluggish economic recovery, the central bank would. Now, more than a year after fleeting GOP presidential front-runner Rick Perry (R-TX) first suggested the "treasonous" Fed chief should be lynched if he followed through on his pledge, Republicans are apoplectic that Bernanke has finally acted. But while GOP leaders are now claiming that Chairman Bernanke is "carrying water for Obama" and trying to ensure the President's reelection, back in 2001 they had nothing but praise for Alan Greenspan as he helped George W. Bush sell his reckless, budget-busting tax cuts to Congress and the American people.
The right-wing reaction to Bernanke's announcement last week was, so to speak, fast and furious. While Mitt Romney denounced this latest round of quantitative easing and suggested he would not reappoint the central bank boss, his running mate Paul Ryan branded Bernanke's policy a "bailout" of the economy under President Obama. Rep. Scott Garrett (R-NJ) asked, "Just how independent are they when they come out, only 50 days before the election, with this?" Meanwhile, Texas Senator John Cornyn accused Bernanke of "trying to juice the economy" before the Nov. 6 election, adding it "looks to be political."
But 11 years ago, Republicans had a different response when then Federal Chairman Alan Greenspan came to Congress to praise what would later become President Bush's $1.4 trillion tax cut plan.
When he took office on January 20, 2001, President Bush inherited both a balanced budget and a CBO-projected 10-year surplus of $5.6 trillion from Bill Clinton. But just five days later on January 25, 2001, Chairman Greenspan gave the new President and his Republican allies the air cover they needed to proceed with their proposed $1.6 trillion tax cut package introduced by Bush. Greenspan's testified to the Senate Budget Committee that tax cuts were just what the doctor ordered for the large projected budget surpluses and slowing economic growth:
"In today's context, where tax reduction appears required in any event over the next several years to assist in forestalling the accumulation of private assets, starting that process sooner rather than later likely would help smooth the transition to longer-term fiscal balance. And should current economic weakness spread beyond what now appears likely, having a tax cut in place may, in fact, do noticeable good."
As CNN noted at the time, the Fed chairman's backing of tax cuts as economically sound likely will provide a boost to the new administration's proposals." House Majority Leader Dick Armey gushed, "This is one of the most exciting days of my congressional career." Senate Republican Leader Trent Lott (R-MS) crowed about just how big a boost the GOP got from The Maestro:
"Alan Greenspan's testimony before the budget committee was huge. He helped immensely."
But as Jonathan Chait recalled last year, many Republicans still weren't content. Some believed the CBO had "lowballed" its 10-year surplus projections by as much as $2 trillion. "Those numbers," Robert Novak wrote at the time, "not only would permit a considerably larger tax cut than Bush's, estimated to lose $ 1.6 trillion in revenue, but in fact would mandate it." And among those supply-side Kool Aid drinkers was none other than Mitt Romney's future running mate:
"It's too small," Rep. Paul Ryan of Wisconsin, the most junior member of the Ways and Means Committee but a leading House supply-sider, told me. "It's not big enough to fit all the policy we want."
As it turned out, the Bush tax cuts of 2001 and 2003 were more than big enough to almost double the national dent during his tenure. They accounted for roughly half the deficits during his tenure and by 2009 were projected by the Center on Budget and Policy Priorities to add more debt over the ensuing decade than the wars, TARP and the revenue lost the recession -combined.
By 2010, the ex-Fed Chairman had a change of heart, belatedly calling for the end of the Bush tax cuts. But as the U.S. Treasury was still hemorrhaging red ink in March 2005, a still-unrepentant Chairman Greenspan defended his past support of the dangerous Bush tax cuts even as the ocean of debt washed over Uncle Sam. When Senator Hillary Clinton took him to task by rightly noting, "Your testimony helped blow the lid off the lock boxes when it came to the size of the tax cut, the extent of the tax cut," a nonchalant Greenspan simply responded:
"I look back and I would say to you, if confronted with the same evidence we had back then, I would recommend exactly what I recommended then. It turns out we were all wrong."
That's simply not true. "We" weren't "all wrong." Democrats had been right, while Greenspan and his Republican allies were catastrophically mistaken. As Paul Krugman documented in 2004, the message behind Greenspan's talk of "pre-emptive smoothing of the glide path to zero federal debt" was unmistakable. "Translation: Go ahead and cut taxes."
All through the Clinton years, Greenspan preached the virtues of fiscal restraint, and he did not change his views when the budget deficits of the 80's and early 90's vanished. Just six months before his 2001 testimony, Greenspan saw no problem with large projected budget surpluses. ''The Congress and the administration,'' he said in July 2000, ''have wisely avoided steps that would materially reduce these budget surpluses. Continued fiscal discipline will contribute to maintaining robust expansion of the American economy in the future.'' But then a Republican entered the White House, brandishing a tax-cut proposal -- and Greenspan suddenly developed an elaborate theory of why it was necessary to reduce those surpluses, after all.
Any doubts that Greenspan holds George Bush to different standards than he held Bill Clinton were dispelled in the years that followed. He didn't call for a reconsideration of the 2001 tax cut when the budget surplus evaporated. He didn't even offer strong objections to a second major round of tax cuts in 2003, when the budget was already deep in deficit.
To put it another way, the Maestro's refrain in support of massive tax cuts was music to Republican ears. Years, Mitt Romney is still singing the same the song, even as his Republican allies in Congress continue to block President Obama's American Jobs Act. Now that Ben Bernanke is trying to alleviate the "national crisis" of unemployment that they will not, Republicans are accusing this Federal Chairman of doing the dirty work of a Democratic President.