Alan Greenspan reports on monetary policy before a U.S. Senate committee
In the Fed chairman's second trip up the Hill this year, this time for his semi-annual courtesy call on Phil Gramm's Senate Finance Committee, Greenspan started off with the good news. Though "for the period ahead, downside risks predominate," Greenspan said — despite some surprising January strength, including Tuesday morning's retail sales numbers — the long-term economic picture "remains quite favorable."
Good news for the markets, which detected yet another half-point interest rate cut on (or before) the Fed's March 20 meeting, and staged a little Tuesday-morning rally. And good news for the rest of us: The New Economy, and its attendant efficiencies, is here to stay. Consumers needn't start stuffing money under the mattress just yet.
Democrats look for tax-cut ammunition
Macroeconomic issues got some attention from Republicans, for whom Greenspan's very reassuring tax comments before the Senate Budget Committee last month was just fine, thank you very much. Democrats ignored the larger economy almost completely, mentioning it only in the service of the White House's and CBO's surplus projections. As in, the projections are always wrong.
As in, we can't count on the surplus. As in, George W. Bush's tax cut is way too big.
Almost anything new and sensible Greenspan said was going to be a dilution of his previous testimony, and there was some of that Tuesday, eagerly sussed out by the Democrats for spinning later. Yes, paying down the debt was still the most attractive priority. No, the tax cut can't kick-start the economy — though it might provide "insurance" if the recession really drags out. Which isn't likely. Yes, some sort of fiscal-responsibility "trigger" on future phases of the tax cut is "conceivable."
Chuck Schumer wanted to know how big a tax cut was "too big." Maryland Democrat Paul Sarbanes went after Greenspan with the jailyard shiv of Senate committee warfare — press clippings — quoting departed fiscal hero Robert Rubin and Newsweek contrarian Allan Sloan both savaging the idea of tax cuts based on these surplus projections.
What about the 'trigger'?
Christopher Dodd got Greenspan to agree that the "core" of his support of tax cuts was based on the notion of not paying down the national debt too fast — a possibility that nobody in Washington but Greenspan seems to take seriously. And Dodd also did his best to pin the Fed chairman down on what is fast emerging as Democrats' sharpest line of attack: "the trigger." If the surpluses don't pan out — and the way Schumer had it figured, the surpluses were already spent — shouldn't the tax cuts be able to be cut off, to save the balanced budget?
Economists don't pin down easy, and with Alan Greenspan, of course, evasiveness an art. He buried Schumer in a haze of "dynamic model" talk that had just the slightest whiff of Reaganomics to it but came to nothing. When Sarbanes got through insulting Greenspan in other people's words, Greenspan curtly quoted his own stuff, the "cautionary note" kicker about government piggishness from his previous testimony. But certainly, if those surpluses were to disappear in a gold rush of discretionary spending, Greenspan admitted, his tax-cut arithmetic would be "mispositioned, if I may put it that way."
As for the "trigger" question, well, it all depends on what pulls the trigger — economic woes or higher spending. Greenspan went back and forth, back and forth, and finally left the pros and cons for Congress to weigh. To which Dodd, pink and shaking with laughter, replied, "Some of my friends are for A, some of my friends are for B, I'm for my friends — is that pretty much what you're saying?"
Replied Greenspan, also smiling, "I fully subscribe to that."