Friday, January 23, 2004

This Won't Help: howard Dean thinks Greenspan should be canned:
"I think Alan Greenspan has become too political. If he lacks the political courage to criticize the deficits, if he was foolish enough -- and he's not a foolish man -- to support the outrageous tax cuts that George Bush put through, then he has become too political and we need a new chairman of the Federal Reserve," Dean said in response to a question from an audience at a town hall meeting in Londonderry.
Two observations here. First, successful monetary policy, as under Greenspan and Paul Volcker, is not the rule in the past century. Sometimes monetary elasticity has been necessary (think WW2), but other times it has been disastrous (the 1930s depression, the 1970s stagflation). Since Reagan took office, nearly a quarter century ago, there have been three economic downturns of note: one necessary downturn in the early 80s, when the money supply was tightened; a small one in the early 90s; and another small one in 2000-2001, which turned out to be shorter than the one in the 90s. In the meantime, inflation has not been a real issue at all. Wherefore this great monetary record? Volcker and Greenspan.

Second, the claim that Greenspan is too political is preposterous. Greenspan has made no secret of his belief that the economy likes tax cuts; on the other hand, he has been a consistent opponent of politicized tax cutting ("targeted tax credits" that aim to modify social habits come to mind) and tax cutting in general when it is not accompanied by adjusted offsetting spending cuts. Greenspan, as noted in the article, claims he did not call for a trigger to reimpose taxes if a deficit occurred. There are several likely reasons for this: one, the economy was in recovery, and an automatic increase in taxes might have been detrimental; two, he might have been as hopeful as I that the president would not spend like a Great Society Democrat; three, despite the constant media refrain about how the deficit "is projected to be the largest ever," the deficit is nowhere near the largest in terms of real dollars or in relation to GDP.

Dean must be smoking rope with the guys at TKE at UNH to be saying stuff this silly.

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