Former Federal Reserve Chairman Alan Greenspan, in his new book, bashes President Bush for not responsibly handling the nation’s spending and racking up big budget deficits.
A self-described “libertarian Republican,” Greenspan takes his own party to task for forsaking conservative principles that favor small government.
“My biggest frustration remained the president’s unwillingness to wield his veto against out-of-control spending,” Greenspan wrote.
Bush took office in 2001, the last time the government produced a budget surplus. Every year after that, the government has been in the red. In 2004, the deficit swelled to a record $413 billion.
“The Republicans in Congress lost their way,” Greenspan wrote. “They swapped principle for power. They ended up with neither. They deserved to lose.”
In 2006, voters put Democrats in charge of Congress for the first time in a dozen years.
Greenspan’s memoir, “The Age of Turbulence: Adventures in a New World,” is scheduled for release Monday. The Associated Press purchased a copy Saturday at a retailer in the Washington area.
The book is a recollection of his life and his time as Fed chief.
Lamented build-up of deficits
Greenspan, 81, ran the Fed for 18 1/2 years and was the second-longest serving chief. He served under four presidents, starting with his initial nomination by Ronald Reagan.
He says he began to write the book on Feb. 1, 2006, the day his successor — Ben Bernanke — took over.
The ex-Fed chief writes that he laments the loss of fiscal discipline.
“‘Deficits don’t matter,’ to my chagrin, became part of Republicans’ rhetoric.”
Greenspan long has argued that persistent budget deficits pose a danger to the economy over the long run.
At the Fed, he repeatedly urged Congress to put back in place a budget mechanism that requires any new spending increases or tax cuts to be offset by spending reductions or tax increases.
Surplusses never materialized
Large projected surpluses were the basis for Bush’s $1.35 trillion, 10-year tax cut approved in the summer of 2001.
Budget experts projected the government would run a whopping $5.6 trillion worth of surpluses over the subsequent decade after the cuts. Those surpluses, the basis for Bush’s campaign promises of a tax cut, never materialized.
“In the revised world of growing deficits, the goals were no longer entirely appropriate,” Greenspan noted. Bush, he said, stuck with his campaign promises anyway. “Most troubling to me was the readiness of both Congress and the administration to abandon fiscal discipline.”
Greenspan, in testimony before Congress in 2001 gave a major boost to Bush’s tax-cut plan, irking Democrats.
At that time, Greenspan argued a tax cut could help the economy deal with sagging growth. The economy slipped into a recession in March 2001. The downturn ended in November of that year.
Surpluses quickly turned to deficits after the bursting of the stock market bubble and the 2001 recession cut into government revenues.
Government spending increased to pay for the fight against terrorism and receipts declined because of a string of tax cuts.
White House defends tax cuts
The Bush White House defended its fiscal policies in light of the Greenspan book.
“Clearly those tax cuts proved to be the right medicine for an ailing economy,” White House spokesman Tony Fratto said. The 2001 recession was a mild one.
“Tax cuts contributed a portion to early deficits, but those tax cuts accelerated growth over time leading to increased business activity, increased job growth and increased tax receipts, which today has us at low historic deficit levels and on a path to a surplus,” Fratto said.
As to the spending side, Fratto added: “We’re not going to apologize for increased spending to protect our national security.”
Of the conflict in the Middle East, Greenspan said: “I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”
Greenspan said he was surprised by the political grip that Bush exerted over his administration.
The Bush administration turned out to be different from “the reincarnation” of the Ford administration that Greenspan said he had imagined. “Now the political operation was far more dominant.” Greenspan was chairman of the Council of Economic Advisers under President Ford.
Not in the 'inner circle'
Power in the Bush White House was concentrated. “I certainly did not qualify as part of the inner circle, nor did I want to be,” Greenspan said.
Greenspan enjoyed a good relationship with Bush’s predecessor, Bill Clinton, “a fellow information hound.”
They also were on the same economic page. During the Clinton administration, budget deficits turned to surpluses. But Greenspan was “disappointed and sad” when news surfaced that Clinton had an affair with Monica Lewinsky, a White House intern.
When Bush’s father was president, Greenspan recalled that he found himself in a public conflict with the White House. Greenspan had suggested inflation risks were still high enough that the Fed would be more inclined to boost interest rates, rather than lower them. The president quickly challenged the notion.
For Bush’s father, the economy was his “Achilles’ heel, and as a result we ended up with a terrible relationship.” The economy went into a recession in the summer of 1990 and emerged from it in the spring of 1991.
Many supporters of the elder Bush blamed Greenspan’s tight-money policies for the recession that contributed to Bush’s loss to Clinton.