Four-term Federal Reserve Chairman Alan Greenspan, now 76, has lost a bit of the magic he wielded as America's economic wizard during the salad days when the American economy was booming. But he hasn't lost his ability to put his finger precisely on the country's economic problem areas - in this case, business uncertainty over a pending war and reservations over the wisdom of President Bush's big proposed tax cut.
In testimony before Congress last week, Mr. Greenspan stated his assessment that uncertainty over whether the country would be going to war with Iraq was acting as a serious damper to spending and investment and thus serving to keep America's economic outlook bleak.
Mr. Greenspan also expressed the opinion that the economic stimulus that Mr. Bush pitches his proposed $674 billion tax cut to be is, first, unnecessary, and, second, not likely to have that effect. Bizarre as it may seem to be saying that we don't want our taxes cut, it is true that most Americans are made uncomfortable by the thought of cutting taxes, running a $307 billion budget deficit, and watching the national debt push relentlessly upward toward $7 trillion.
Our lack of comfort with that concept is magnified by the fact that, if there is a war, the bill for that will be at least another $100 billion, if it goes as easily as some of Washington's more optimistic seers seem to think it will. So it seems to us that Mr. Greenspan has that part right, too.
Mr. Bush was certainly not content to take Mr. Greenspan's assessment at face value, or as useful counsel. It is worth noting that the Fed chairman was appointed by President Ronald Reagan in 1987 and is a Republican, so there is no party political angle to his advice.
First, Mr. Bush counterattacked in a speech he made Wednesday in a stockbroker's office in suburban Virginia, characterizing his own plan as “well-thought-out.” Then White House spokesperson Ari Fleischer and economic adviser R. Glenn Hubbard were turned loose to attack Mr. Greenspan's analysis, with a dismissive “As you know, economists don't always agree,” from Mr. Hubbard.
The nastier part came from White House spokesperson Claire Buchan, who said that Mr. Bush “has a great deal of confidence” in Mr. Greenspan, adding ominously that Mr. Greenspan's term as Federal Reserve Chairman doesn't expire until the middle of next year.
Mr. Greenspan is right about the discouraging effect of the war talk on the economy, and about the lack of sense in a tax cut at this point. The administration's response to his counsel is obviously not just to reject it, but also to threaten to shoot the messenger.
Congress will now consider Mr. Bush's budget and tax-cut proposals. It will be interesting to see their reaction to Mr. Greenspan's analysis of the situation. Will the Republican majorities in both houses simply roll Mr. Bush's proposals on through, or will Mr. Greenspan's comments provide them cause for serious reflection?