When a few Chinese ministers threatened to sell their US dollars because of policies toward the Yuan, the threat was real. To be fair, this was probably two ministers trying to make inroads into the Communist Party of China, but we should all stand up and take note that our policies have introduced a significant risk of foreign manipulation to our economy. Someone has to make up the difference between our spending and our tax revenue. In this case it was foreign countries like China who may not have our best interests in mind when they make their financial decisions.
President Bush rarely used his veto pen until the Democrats took over Congress. The result was an out-of-control appropriations process where almost every significant bill was laden with pork spending such as the "bridge to nowhere". Pundits can point to Rep. Jefferson (D-LA) who took a $100,000 payoff all they want, but conservatives expect better from their people and don't want politicians who are just as corrupt as Democrats. Illinois Republicans learned that lesson with George Ryan and the result was that the Illinois Republican party is defunct and no longer capable of winning statewide office. The national Republican Party should look at how rampant corruption and waste worked out for the Illinois Republican party… that's their future unless they get it together.
That said, Greenspan is, as are most conservatives, for "tax-cut and spending-cut" and corruption-free policies. Judging from the field of 2008 Republican nominees, it is doubtful that any of them are up to the task of pruning the budget to end the deficit or cleaning up the corruption in Congress. This is why Newt Gingrich is also right that there is an 80-20 chance that there will be a Democratic (probably Hillary Clinton) president in 2008.
Article comments
— go to most recent comments1 - Maurice
Well written, John. Thanks for writing something well worth reading.
Here in Idaho the largest employer is... the state Government! I view the people as the host and government as the parasite. When the parasite becomes larger than the host the host dies!
2 - bliffle
Greenspan has himself to blame for some of this since he seconded the Bush deficit plans and reinforced them with spurious Fed policies. And the hits keep coming from Bernanke.
Fed policy shouldn't be used to improve the stock market or the housing market. Nor to make an irresponsible senior executive electable.
3 - Douglas V. Gibbs
It is a proven fact that tax cuts encourage an economy. Good article.
4 - bliffle
Sorta, Doug. "All else remaining equal" , as they say. But "all else" never does. Federal spending also stimulates an economy. Oops!
It's difficult in this case to disentangle the effects of huge deficit spending under Bush from tax cuts.
5 - Maurice
bliffle you are way off, man. Federal spending will never stimulate the economy. Here is a great quote from the always cheerful Walter E. Williams:
"Bastiat wrote a parable about this that has become known as the "Broken Window Fallacy." A shopkeeper's window is broken by a vandal. A crowd forms, sympathizing with the man, but pretty soon, the people start to suggest the boy wasn't guilty of vandalism; instead, he was a public benefactor, creating economic benefits for everyone in town. After all, fixing the broken window creates employment for the glazier, who will then buy bread and benefit the baker, who will then buy shoes and benefit the cobbler, and so forth.Those are the seen effects of the broken window. What's unseen is what the shopkeeper would have done with the money had the vandal not broken his window. He might have employed the tailor by purchasing a suit. The broken window produced at least two unseen effects. First, it shifted unemployment from the glazier, who now has a job, to the tailor, who doesn't. Second, it reduced the shopkeeper's wealth. Explicitly, had it not been for the vandalism, the shopkeeper would have had a window and a suit; now, he has just a window."
Just think of all the things that could be done with the money the government conficates and wastes.
6 - Les Slater
It's interesting that this comes out as the housing bubble is bleeding itself down starting with sub-prime.
I neve have been one to emphasise the qualities of the gangs running government during various phases of economic cycles. The economy was showing signs ofstress during Clinton. He just got outin time.
Greenspan did have his hand in a few bubbles, the more recent being the housing price speculation one.
Les
7 - Clavos
Nice article, JB.
You're dead on with the point about fiscal conservatives abandoning the Republicans because of Bush's profligate spending.
I like the way Fred Thompson talks about spending and taxes, but I think Newt's probably right.
8 - GM Roper
John, well done sir, and right on the money. Republicans need to back away from the tax-cut and spend mentality and return to the fiscal responsibility that we used to expect. Until they do, I'm only voting for Republicans that WILL. If we wanted spendthrifts, we'd vote for Democrats. Oh, wait, America did!
9 - bliffle
Maurice,
Seems to me you said you are an Engineer, a degreed Engineer, I hope. If so, you must realize by now that the mathematical sophistication of the typical BC participant is arrested at the 10th grade level when they were taught about 2-dimensional XY plots, immediately assumed everything could be represented that simple way and fell asleep for the rest of their educations. They are still arrested, still asleep, and still wrong.
The latest manifestation of this nitwittism is the laughable "Laffer curve", a fantasy that was resurrected most recently in NRO using a small number of unrelated and heterogeneous datapoints. Laughable, indeed. But so it goes with such people.
Maurice: don't risk becoming a laughingstock by adopting ideas of less knowledgeable students, C students, usually, who are not only poorly trained but usually dominated by extravagant theories of other pinheads.
10 - John Bambenek
To be fair, federal spending CAN stimulate an economy. When the federal spending is driven by taxation, the inefficiencies of Washington far outweigh the benefit gained. However, in this is important, in the short-term if federal spending is financed by foreign borrowing, there can be stimulation. The problem is, you eventually have to pay it back, with interest, so you take a long-term hit. Long-term in the sense it hits when the people responsible are long gone.
You might be able to get away with it if you did it wisely to spur growth quickly and stop the borrowing just as fast. However, there is no wisdom to be had in DC, in either party, and any lending comes with consequences (see the dollar prices).
11 - bliffle
How sad that this statement can be made: "Many on the right are lamenting the "conversion" of former Federal Reserve chairman Alan Greenspan and will likely start to discredit him..."
As if this position, which is paid for by US taxpayers, were a partisan job to look out for the interests of a particular political party and NOT the best interests of the US citizenry.
12 - Les Slater
Blif,
The Fed's role does not include looking out for the best interests of the U.S. citizenry. Where did you hear that?
Les
13 - troll
right about the economy...but is he right about the oil - ?
14 - Maurice
bliffle
I am an Engineer (EE). I was a C student myself so I guess I fit right in with your opinion of the rest of BC participants. I have no formal education in Economics but I am a fan of Frederic Bastiat, Walter Williams, and of course Milton Fridman. Here is a quote from Alan Greenspan:
"Milton Friedman was the most influential economist of the second half of the 20th century…possibly of all of it."
BTW did you read the parable and did it make sense to you?
15 - John Bambenek
Of course Greenspan is right about the oil, but I imagine he's comments are more nuanced than were presented (I'll probably get the book today).
Iraq would have never been on the radar in 2002, 1991 or ever if it weren't for the fact the region was oil-rich. Oil is a strategic resouce (like it or not) and we need lots of it to keep our country churning. We can have a nice discussion about alternative energy (which I support research in) or drilling for our own oil (which I also support) (or hell, refining our own gas, we import that now too), but right now if we stopped getting enough oil or economy grinds to a halt.
I think people take a too narrow viewpoint of oil. Sure big oil companies have vested interests, and we can talk about that. But even if the oil companies were populated by philanthropists who took no profit and operated at perfect efficiency, oil remains a critical key point of failure for our nations economy. No oil and you can kiss about every aspect of modern life goodbye.
16 - John Bambenek
And biffle...
Be afraid... be very afraid... I agree with you (Re: #11)
17 - Dave Nalle
Let's not grossly misrepresent Greenspan's point about oil and Iraq. He's not saying that we went in their to seize their oil, he's making the obvious even indisputible point that the reason we have strategic interests in that reason at all is the oil. We don't need to seize Iraq's oil, but we do need to keep the middle east stable so taht oil keeps flowing.
Dave
18 - troll
...and had we left well enough alone and let the Chinese and French and Russians etc develop the fields more oil would be flowing today - production remains well below pre-war levels - good job (see the latest Iraq Index for this)
stability in the middle east...ain't it grand
time to go before someone starts yammering about fungibility
19 - John Bambenek
Yeah, but Iraq and the ME wasn't exactly left in good shape when we left in 1991. The policy of sanctions that we had all but made it necessary to go back in. It was a stupid policy so let's place the blame where it belongs, back on Bush Sr. You fight wars to end them, not let them linger for 12 years necessitating going back in. Sanctions don't work unless they are a prelude to war in the short-term. Look at how the sanctions worked out for Cuba.
20 - Dave Nalle
Actually, according to Alex Jones this afternoon, when Greenspan turns on Bush it's a sign that the secret masters of the New World Order are going to use Bush as a scapegoat to direct our attention away from their secret machinations, all of which seem to be targeted on providing cheaper vegetables in Des Moines for some reason.
Dave
21 - bliffle
Realist is actually right. Money drained from the consumer sector has the highest economic multiplier, much higher than capital. That's why tax breaks for poor and lower middleclass and government benefits have such profound effect: they consume most of their income, have little dicretionary money, and save little.
Maurice, I read Frederick Bastiat probably a generation before you did. He writes fun parables, my personal favorite is "The Petition Of The Candle Makers". Unfortunately, his contributions to Economics are slight.
And I thought you confessed to being a EE, in which case you must have attempted to stagger tune an IF strip at some time and thus understand some of the problems of manipulating a multi-variate closed loop system. Economies are even more complex, and, just as with an IF strip, simplistic ideas will surely lead you astray. Way astray.
Greenspan miscalculated: he assumed that congress would reign in the careless spending of the irresponsible Bush and Company.That way he got to pretend to be a loyal Bush supporter and still not suffer from the consequences of overspending. Boy, was he wrong. Let him suffer for his crimes.
Usually, the Fed Chairmans chief task is to fight inflation and thus stabilize the general economy. But does that benefit the average US citizen? Not necessarily. Most US householders principle equity is their home, which generally outpaces inflation. On the other hand, a stable economy reduces the rate of investment by capitalists. Most economists concede that inflation is good, they just argue about the rate.
22 - bliffle
Of course the fabled 800 lb. gorilla in the room is that if we had spent $1trillion on technology and capital investment we could probably have solved ALL our energy requirements for the foreseeable future. And we'd have all the residual benefits of a developed science and engineering base that would assure our position as the world leader. Our USA workers would have improved their wages, capitalists would have a cornucopia of new tech areas to invest in and develop, and the world would come knocking at our door to buy products.
Plus, we would have worldwide respect.
Plus, we'd not have lost 4000 (or 5000 or 6000 or whatever...) US soldiers in a lost cause.
Plus, we could clean our skies and rivers and seas with the same technology.
The only minus I can think of is that the oil company execs would have to get off their duffs and actually do some work (you know, invest, develop new businesses, transition sunset industries, etc., the kind of things execs used to get paid for) instead of just bribing government officials.
What we did instead was to just burn up $1trillion and let thousands die. No residual benefit. Pure loss.
Why? Because of paranoid nightmares?
23 - John Bambenek
I would disagree with how you frame it, but Iraq borders on a religious debate now with no real way to win.
However, just because money is spent in Iraq doesn't exonerate all the waste spent elsewhere. There's plenty of ways to make up the $1T that don't involve Iraq. All that pork barrel spending adds up to lots of bridge repairs and R&D development too.
24 - Clavos
A lot of good points in #22, bliffle.
Especially regarding what could have happened had we invested the bucks in R&D in technology.
The only part I disagree with is the bit about the oil company execs; as long as the oil lasts (and there are many who say there's more than 100 years worth still in the ground in one form or another), they don't really have to do anything other than look eastward to China....
25 - Dave Nalle
The only minus I can think of is that the oil company execs would have to get off their duffs and actually do some work (you know, invest, develop new businesses, transition sunset industries, etc., the kind of things execs used to get paid for) instead of just bribing government officials.
Do you mean things like funding alternative fuel research or developing solar technology or selling and promoting biofuels or spending $350 million on alternative energy research?
Seriously. Follow the links. Just like the tobacco companies in the 70s and 80s, the oil companies have been diversifying so that they will achieve their own petroleum independence and likely take us with them.
Dave