EDITORIAL
Greenspan's puzzling economic nostroms
The ancient Greeks used to flock to the Oracle of Apollo at Delphi, hoping to get a reading on what the future might hold.
Such knowledge is power, they knew. But they usually ended up walking away muttering "Huh?"
As presented, the oracle's truths were baffling, paradoxical, even contradictory — the perfect prototype for Federal Reserve Chairman Alan Greenspan.
In testimony before the Senate Budget Committee this week, for instance, Greenspan managed both to support and sharply disagree with the Bush administration's policy of making permanent the huge tax cuts of 2001 and 2003.
"I am in favor, as I have indicated in the past," he said, "for continuing the tax cuts that are in dispute at this particular stage."
But he expressed increased alarm about the prospect of huge budget deficits in the years to come, adding that getting them under control is "an essential element in restoring fiscal sanity."
How, senators asked the bespectacled fiscal oracle, can we have huge permanent tax cuts and a balanced budget at the same time?
You can't, Greenspan said. He recommended that Congress reinstate the "pay as you go" rules that it imposed in the 1990s and let expire in 2002. Those rules, which helped the nation to a substantial budget surplus, essentially required that almost any tax cut or spending increase be matched by an offsetting budget change of equal value so there should be no net increase in the deficit.
The problem is, of course, that Congress has never compensated for the huge Bush tax cuts. It's the reason for the $521 billion deficit this year and, if the cuts are made permanent, projected deficits of $1.5 trillion over the next decade.
Where to get $1.5 trillion? "I would argue strenuously that it should be taken out on the expenditure side," the oracle answered.
Given that discretionary spending — except defense and homeland defense — has hardly risen at all in real terms under Bush, however, Greenspan found himself in a corner. He had to recommend that Congress save by trimming Social Security and Medicare benefits, a recommendation he must know has a snowball's chance in, well, Delphi.
Indeed, Bush has just enacted a law that will add prescription drug benefits to Medicare at a cost of $540 billion over 10 years.
President Bush maintains you can have your cake and eat it, too — that you can cut taxes without cutting spending because the economic stimulus of the cuts will more than make up for the tax shortfall.
It's a supply-siders' article of faith that never has been demonstrated in practice. Indeed, the mushrooming deficit seems clearly to prove the opposite — a point emphasized by Greenspan, even as he gave lip service to Bush policies.
Greenspan is clearly right about one thing: The present course is fiscally insane. But what to do about it?
We walk away from the oracle muttering "Huh?"
