William J. Polley

Can we just agree to ignore his own complicity in the deficit?

Oh well. I made it almost three whole paragraphs before the testimony became insulting:
Many of the provisions that helped restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated ever more frequently; finally, in 2002, they were allowed to expire.
Gee, wonder if Mr. G. had anything to do with that? Or if he spoke out against the pile-on tax cuts of 2003 and 2004?

Or should we assume that new information has arisen? Oops:
In 2008--just three years from now--the leading edge of the baby-boom generation will reach 62....Just three years after that, in 2011, the oldest baby boomers...will...be eligible for Medicare. Currently, 3-1/4 workers contribute to the Social Security system for each beneficiary....[B]y 2030, and the ratio of covered workers to beneficiaries will be down to about 2.
Greenspan supporters are invited to identify which of these was not known or expected by his own commission in 1983. The rest of us know the answer to be "none."

Triple OOPS. Sorry.

I deleted the duplicate comments, Ken. Don't worry.

I wasn't terribly comfortable with his statements on the tax cuts a few years ago. I'd rather the Fed chair stick to monetary policy.

As for the Social Security part of your comment, the Greenspan commission certainly knew that we would be in the spot we are in. I don't have any explanation other than they must have been counting on another short term fix down the road.

But before you dismiss that as a crazy idea, consider this... what if the Greenspan commission had raised payroll taxes even further in 1983 and created larger surpluses and a larger Trust Fund in the hopes of pushing the 2042 date further into the future. With no ability to get future administrations to keep their hands out of the cookie jar, just think about how much worse things might look (in terms of how much the general fund owes the trust fund).

Sort of a classic time-consistency problem. Hmmm... this might be worth some thought.

Bill - where to begin? Oh yea - your comment over at Angrybear about Greenspan being in a difficult position. If the FED chairman is not free to express his own opinion out of fear that it will not fare well within the White House, we are in big trouble. I hope that is not what you meant - and I hope Greenspan is not that much of a hack. But Greenspan in 1983 was saying things that are completely contrary to what he was saying in 2001 or now. The news over the past 20 plus years re Soc. Sec. solvency has more more good than bad. Reagan and Greenspan in 1983 were saying the payroll tax increase was prefunding. Greenspan in 2001 was saying cut taxes because all that prefunding was a bad thing (OK, he worried about public debt going to zero but I've simply finished the thought). Now government debt is too big so slash Soc. Sec. benefits but heavens - we cannot reverse the 2001 tax increase. This is pure hackery. That is all.

PGL,

I absolutely did NOT mean that Greenspan has to worry about how it would play in the White House. I say again, absolutely not. For the benefit of those who missed it, I said (referring to someone else's comment),

"I only heard a little of Greenspan's comments today, but what I did hear makes me think that he shares some of your concerns--even if his position makes it difficult to voice them more vigorously."

The concerns I spoke of were, as we all know, concerns over the unsustainable path of fiscal policy. I think he is very concerned. I also believe that he (and we) have reason to be concerned. However, he has to temper his remarks, not for the benefit of the President (seriously, why should he care what the President thinks at this juncture?) but for the financial markets. The LAST thing he wants to do right before leaving is to blow the horn so loudly on this that he sparks the kind of difficulties that so many people are worried about. That would be bad. That's at the heart of what I meant. The fact that his position makes it hard for him to voice his opinions more vigorously is due to the way the financial markets parses his words, not whether the President finds them tough to swallow.

It seems to me that he is trying (and succeeding) in managing exactly how he wants his remarks to play in the media. I'll bet he wanted the headline to be "stagnate or worse." And indeed that's the line that's being quoted (I just heard it on the radio again a few minutes ago). Nothing too specific, and lots of talk about balancing fiscal priorities. As far as that goes, it's not entirely inappropriate for him to make that statement in the context of where the economy is going. He's sounding a warning. Fine.

But I don't think he will, nor do I think he should, get more specific. It's not his job. The market will almost certainly misinterpret what he might say, and will certainly add uncertainty to what the FOMC might do.

Go back to your own assertion about the Fed overreacting to fiscal stimulus in 1981. I'm not sure I want the Fed chair commenting too much on what level of taxes or spending is appropriate at the same time that the Fed is tightening. Too much talk could create expectations that would force the Fed to push rates even higher--risking the very outcome you talk about. Again, I don't think 1981 is the best analogy for today. I don't think this has to happen. But if the Fed starts putting fiscal policy on it agenda, then your analogy might turn out to be right. I really want to avoid a 1981.

My comment at Angry Bear, my comment above responding to Ken, and my quoting of Pianalto in my next post are all related. Avoid too much crosstalk between monetary and fiscal authorities. Likewise I don't want Congress or the President talking too much about monetary policy except during Humphrey-Hawkins Q&A, the proper forum for such a thing.

Second point: I was uncomfortable with his statment in 2001 (of course that was in my pre-blogging days so I don't have a post to back that up!) for reasons stated above. I gather that you were uncomfortable with it for different reasons. Different routes to the same conclusion.

But what do you think of my time consistency argument?