Paul Krugman’s Nobel Prize for Economic Journalism

Some people think that Paul Krugman should get the Nobel Prize for his economics. I disagree. It’s not that good – though a prize a year, often shared beteween the architects of various fields means that the field is likely to narrow down over time – they’ll be scraping further below the very cream. And since Krugman was an architect of a rather ill fated feint in the discipline nearly three decades ago now – new or strategic trade theory – his time may well come.

His journalism on the other hand is another matter. Reading of Greenspan’s latest book which attacks George W Bush for his fiscal vandalism, I wondered how long Kruman’s reply would be in coming. Hours it seems.

The great thing about economic journalism is that it’s about something. It’s not ‘my spin on the way the pollies’ spin is spinning’ which is what so much of what passes for political comment is, at least in Australia. That means that when someone says economic black is economic white an economic journalist – or at least one of the stature of Krugman – won’t pussyfoot around writing on how he’s ‘repositioning’ himself and wondering aloud how it will go down. He will write a column on what a liar or hypocrite they are.

While everyone was in awe of Alan Greenspan, it was Krugman who pointed out how partisan he was. Lecturing Clinton about the importance of fiscal discipline and then helping Bush wreck it.

Here’s his response to Greenspan’s lament about Bush’s fiscal laxity.

Sad Alans Lament

When President Bush first took office, it seemed unlikely that he would succeed in getting his proposed tax cuts enacted. The questionable nature of his installation in the White House seemed to leave him in a weak political position, while the Senate was evenly balanced between the parties. It was hard to see how a huge, controversial tax cut, which delivered most of its benefits to a wealthy elite, could get through Congress.

Then Alan Greenspan, the chairman of the Federal Reserve, testified before the Senate Budget Committee.

Until then Mr. Greenspan had presented himself as the voice of fiscal responsibility, warning the Clinton administration not to endanger its hard-won budget surpluses. But now Republicans held the White House, and the Greenspan who appeared before the Budget Committee was a very different man.

Suddenly, his greatest concern the emerging key fiscal policy need, he told Congress was to avert the threat that the federal government might actually pay off all its debt. To avoid this awful outcome, he advocated tax cuts. And the floodgates were opened.

As it turns out, Mr. Greenspans fears that the federal government would quickly pay off its debt were, shall we say, exaggerated. And Mr. Greenspan has just published a book in which he castigates the Bush administration for its fiscal irresponsibility.

Well, Im sorry, but that criticism comes six years late and a trillion dollars short.

Mr. Greenspan now says that he didnt mean to give the Bush tax cuts a green light, and that he was surprised at the political reaction to his remarks. There were, indeed, rumors at the time which Mr. Greenspan now says were true that the Fed chairman was upset about the response to his initial statement.
But the fact is that if Mr. Greenspan wasnt intending to lend crucial support to the Bush tax cuts, he had ample opportunity to set the record straight when it could have made a difference.

His first big chance to clarify himself came a few weeks after that initial testimony, when he appeared before the Senate Committee on Banking, Housing and Urban Affairs.

Heres what I wrote following that appearance: Mr. Greenspans performance yesterday, in his first official testimony since he let the genie out of the bottle, was a profile in cowardice. Again and again he was offered the opportunity to say something that would help rein in runaway tax-cutting; each time he evaded the question, often replying by reading from his own previous testimony. He declared once again that he was speaking only for himself, thus granting himself leeway to pronounce on subjects far afield of his role as Federal Reserve chairman. But when pressed on the crucial question of whether the huge tax cuts that now seem inevitable are too large, he said it was inappropriate for him to comment on particular proposals.

In short, Mr. Greenspan defined the rules of the game in a way that allows him to intervene as he likes in the political debate, but to retreat behind the veil of his office whenever anyone tries to hold him accountable for the results of those interventions.

I received an irate phone call from Mr. Greenspan after that article, in which he demanded to know what he had said that was wrong. In his book, he claims that Robert Rubin, the former Treasury secretary, was stumped by that question. Thats hard to believe, because I certainly wasnt: Mr. Greenspans argument for tax cuts was contorted and in places self-contradictory, not to mention based on budget projections that everyone knew, even then, were wildly overoptimistic.

If anyone had doubts about Mr. Greenspans determination not to inconvenience the Bush administration, those doubts were resolved two years later, when the administration proposed another round of tax cuts, even though the budget was now deep in deficit. And guess what? The former high priest of fiscal responsibility did not object.

And in 2004 he expressed support for making the Bush tax cuts permanent remember, these are the tax cuts he now says he didnt endorse and argued that the budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.

In retrospect, Mr. Greenspans moral collapse in 2001 was a portent. It foreshadowed the way many people in the foreign policy community would put their critical faculties on hold and support the invasion of Iraq, despite ample evidence that it was a really bad idea.

And like enthusiastic war supporters who have started describing themselves as war critics now that the Iraq venture has gone wrong, Mr. Greenspan has started portraying himself as a critic of administration fiscal irresponsibility now that President Bush has become deeply unpopular and Democrats control Congress.