What Greenspan meant

Posted: Feb 03, 2003 12:00 AM
WASHINGTON -- Fragile support for President Bush's tax plan was dealt a potentially serious blow last week when it was reported that Alan Greenspan disapproved. Opponents rejoiced, and supporters wavered. In truth, however, what the immensely influential Federal Reserve chairman said was favorable to the proposed repeal of taxes on dividends. All evidence is that Greenspan was sandbagged. Invited by a bipartisan self-styled "centrist" group for a supposedly off-the-record session, Greenspan was asked what he thought of the Bush plan. He responded that it would not provide much short-term stimulus (as, indeed, is not its intent) but would be beneficial to the economy in the long run. With lightning speed, the first half of Greenspan's formulation was leaked, leading Senate Democratic Leader Tom Daschle to declare on national television that Bush's package is "dead on arrival." Alan Greenspan is the modern Delphic oracle, whose approval has been sought by Democratic and Republican presidents alike for both tax increases and tax cuts. While his blessing invariably has been gained, it is always qualified -- wrapped in impenetrable prose recalling his ancient predecessor of Delphi. Greenspan normally protects himself by making ambiguous declarations on the record, but this time he left himself open to distortion by talking off the record. He accepted an invitation to meet on Jan. 23 with the bipartisan Centrist Coalition, a dozen or so senators headed by Democratic Sen. John Breaux of Louisiana. The group was formed by Breaux and the late Republican Sen. John Chafee of Rhode Island during the Clinton administration in an unsuccessful quest for a health care compromise. Its current members range across the ideological spectrum from Republican Sen. Robert Bennett of Utah on the right to Democratic Sen. Dianne Feinstein of California on the left. Staff members were excluded on Jan. 23, and the senators were pledged to secrecy. Nevertheless, four days after the meeting, last Monday's edition of The Wall Street Journal reported that Greenspan had said Bush's tax plan "would provide the economy with little near-term effect." The report quoted unnamed senators as concluding "from the session" that Greenspan "wants Congress to pass a much smaller stimulus package or none at all." That conclusion was passed on to Daschle by Democratic members of the Centrist Coalition, who were acting more like partisans than bipartisan centrists in giving their party leader ammunition for his Jan. 26 appearance on CBS's "Face the Nation." "The stock-dividend approach is dead on arrival," proclaimed Daschle, based in large part on Greenspan's perceived opposition. Greenspan-watchers suddenly attached new importance to the unexplained cancellation of his scheduled Jan. 14 appearance before the Senate Budget Committee. Was it because he did not want to speak out publicly against Bush? On the day after The Wall Street Journal report, the weekly luncheon meeting of Republican senators erupted with bitter complaints that Greenspan had been grossly misrepresented. Their version sounds plausible and is more in keeping with the Fed chairman's style. According to the Republicans present, Greenspan lectured the senators about basic economic theory. Monetary policy, conducted by the Federal Reserve, can achieve short-term success in stimulating the economy. Fiscal policy, conducted by the president and Congress, exerts a long-term impact in promoting economic growth. That analysis is shared by authors of the Bush economic team. As for ending taxation of dividends, Greenspan indicated that this structural change is desirable in ending a form of double taxation and should promote long-term growth. Such an assessment would be expected from any conservative economist. As for the Jan. 14 Budget Committee hearing, it was cancelled because of Democratic obstruction to reorganizing the Senate that had not been resolved up to that point. Seven new members of the committee were not yet permitted to attend, and the Republican leadership called off the session. Greenspan, renowned as the world's most politically savvy central banker, surely knew that he could expect neither confidentiality nor accuracy from a dozen U.S. senators. If Greenspan really chose to break with the president on taxes, there are many better ways that he could have sent a more precise message. Instead, he was engaging in unrestricted Greenspan-speak, and Democrats determined to checkmate George W. Bush capitalized on his carelessness.