Greenspan assails Bush "league"economics

Republican Politics, American Style
Published on November 1st 2007 in Metro Eireann By Charles Laffiteau

In several previous columns over the last year I have assailed the domestic economic and monetary policies of President Bush and accused him and many other Republicans in Congress of betraying Republican economic principles over the course of the last 6 years. For those Republicans who think I am all wet and see nothing but sunshine on the economic front, I now refer them to a respected Republican “authority” on economic and monetary policy matters, former Federal Reserve Chairman Alan Greenspan.
The vast majority of Americans and Republicans would regard Alan Greenspan as much more knowledgeable about economic and monetary policy than President Bush or any Republican serving in Congress. First appointed US Federal Reserve chairman by Republican President Ronald Regan in August 1987, he was later reappointed at successive four-year intervals by Bush’s father, Democratic President Bill Clinton and then by the current President Bush until his retirement at the end of January of last year. Alan Greenspan was always considered to be the leading authority on US economic and monetary policy and his active influence on the Fed and current chairman, Ben Bernanke, continue to this day.
When President Bush first brandished his credit card to pay for his war to “liberate” Iraq and defend the US against Al Qaeda terrorism, the US dollar was almost at parity with the Euro at 105 US cents needed to purchase a single Euro. Today, four and a half years, $600 billion and thousands of lives later, the dollar has lost over a third of its value, such that 145 US cents are now required to buy a single Euro. Since the price of oil has also tripled from $25 a barrel to over $79 a barrel during this same time period, who has really benefited from Bush and Cheney’s decision to invade Iraq as part of their “war on terror”? The average American citizen or oil company executives?
Like me, Greenspan voted for George Bush in 2000 and was initially elated to see some of his old friends like Donald Rumsfeld and Dick Cheney (from their days in Republican President Gerald Ford’s White House) returning to positions of power within the US Federal Government. Greenspan writes that “I thought we had a golden opportunity to advance the ideals of effective, fiscally conservative government and free markets.” But this elation soon turned to dismay when Greenspan realized just how much these men had changed during the intervening 25 years going on to say that “I was soon to see my old friends veer off in unexpected directions.”
Greenspan doesn’t mince his words in his recently published memoirs when he describes Bush and Cheney’s real motive for invading Iraq with his statement that “I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.” While President Bush continues to claim that he did so to end Saddam’s support for terrorism and prevent him from using his non-existent weapons of mass destruction, Greenspan believes as I do that the real reason was Bush and Cheney felt that Saddam Hussein posed a threat to the security of US oil supplies in the Middle East.
Bush and company believed that they could “liberate” Iraq, remake the country into America’s image and thus guarantee continued US access to low cost Middle East oil supplies from the region. Hmmm. Since the price we pay for oil has more than tripled since the beginning of the Iraq war it appears that all Bush and Cheney accomplished was to raise the price of oil and the revenues or profits of the countries and companies that produce it. Was this another smart move by Bush? If you’re in the oil business you would certainly think so.
But Alan Greenspan doesn’t stop there with his critical assessment of President Bush, Vice President Cheney and the Republican Congress’ dismal performance in office over the last seven years. He accurately portrays them as abandoning their party’s principles on government spending and deficits. Greenspan says that “The Republicans in Congress lost their way. They swapped principle for power (and) they ended up with neither. They deserved to lose (control of Congress in the 2006 election).” It goes without saying that Greenspan also agrees with me that based on the Republican Party’s record since the 2006 elections, Republicans also deserve to lose again in the upcoming 2008 elections
Greenspan then goes on to describe the Bush administration as so captive to its own political ideology and re-election manoeuvres that it stopped exercising any kind of fiscal discipline. Greenspan also assails the Republican tax cuts in 2001 as being irresponsible in light of the ballooning federal budget and spending bills passed by the Republican controlled Congress with Bush’s support. Bush has defended himself against Greenspan’s accusations by touting his pre 9/11 income tax cuts positive impact on the economy saying that “I would also argue that cutting taxes made a significant difference, not only with dealing with a recession and an attack on our country, but it also made a significant difference in dealing with the deficit, because a growing economy yielded more tax revenues, which allows us to shrink the deficit.”
But if one looks closely at all the economic data a much different picture emerges than the one President Bush is trying to paint for the American public. Bush first took office in 2001, the last time the US government produced a budget surplus. Every year after that, the government has been in the red with the budget deficit swelling to a record $413 billion by 2004. Yes the economy was growing but much of this growth was due to easy credit, which was, in turn, fuelling speculative real estate investments and low interest adjustable rate mortgages for people with poor credit. Now the bill is coming due as the US economy teeters on the brink of a recession caused by the meltdown of the market for mortgage backed securities and the bursting of the real estate bubble which ballooned following Bush’s 2001 income tax cuts.
Bush also fails to note the “hidden tax increases” which are being driven largely by the negative consequences of the ballooning budget deficit. Persistent deficits always lead to higher borrowing costs for consumers and companies, thus slowing economic activity and shrinking government tax revenues rather than increasing them. The other hidden tax increase comes in the form of the higher prices Americans are paying for imported goods and anything derived from oil. So whose opinion is more relevant, Bush’s or Greenspan’s?