Greenspan's Parting Shot: Reduce The Deficit

Allen Greenspan testified before Congress yesterday for what may well be the last time as Fed Chairman. His message: For now, the economy is doing well depsite the hurricanes, but the continuing growth of the federal deficit is unsustainable:

Federal Reserve Chairman Alan Greenspan said yesterday that the U.S. economy is in generally good health but will suffer in coming years unless Congress slows the growth of federal budget deficits. . . ."Unless the situation is reversed, at some point these budget trends will cause serious economic disruptions," he said.

Greenspan also repeated that he favors extending recently enacted tax cuts that are scheduled to expire in coming years but only if they are offset by spending cuts of similar value so they do not boost the deficit.

"We should not be cutting taxes by borrowing," Greenspan said, sticking to a position at odds with the White House and Republican congressional leadership. "We should be cutting taxes by reducing the level of spending."

I have to admit that my first reaction to this was pretty negative. I agree that deficit reduction is a (perhaps the) top domestic priority, but, even assuming federal spending cuts are the best way to do reduce the deficits, the idea that we will ever have the political will to cut spending appreciably seems laughable. As others have noted, the Republicans are no better at spending restraint than Democrats. Where Democrats (at least historically) could fairly be labeled the "tax and spend" party, the Republicans have shown themselves to be the "borrow and spend" party. The common demoninator to both is "spend." The only difference is where the money comes from: American taxpayers or Chinese investors. And, it is a mistake to blame the parties or politicians themselves. As the old saw goes, in a democracy, the people end up getting the government they deserve. The basic problem is that we the people want things that we are not willing to pay for, not just from government, but in our private lives as well.

Kevin Drum argues that recent events in Colorado may signal that our our quarter-century love affair with tax cuts is fading a bit:

Business is the chisel driving a crack between moderate Republicans and the anti-tax fanatics. Although there is no group in Washington more loyal to the GOP's anti-tax doctrine than the Chamber of Commerce, in the states, reality often trumps ideology. “For businesses to be successful, you need roads and you need higher education, both of which have gotten worse under TABOR [Clorado's "taxpayer Bill of Rights]and will continue to get worse,” says Tom Clark of the Denver Metro Chamber of Commerce, who notes that higher education has shrunk from 25 percent of the state budget in 1995 to about 10 percent today. “I'm a Republican,” Clark says, “but I made the decision not to give any money to the state [Republican]party.”

And what happened? On Tuesday, Colorado voters passed Referendum C, which gutted TABOR: The Taxpayer's Bill of Rights is "as good as dead" in Colorado, state Rep. Joe Stengel told conservative leaders from across the country Tuesday.

He then refers to a WSJ article reporting that:

[C]onservatives immediately fretted that the Colorado vote might signal an erosion of public support for spending discipline. And early indications for the next test suggest they have good reason for concern.

All eyes now turn to California, where voters Tuesday will decide on a state spending cap that would limit education spending. A Los Angeles Times poll this week shows that the measure, backed by Republican Gov. Arnold Schwarzenegger, faces an uphill fight.

I hate to burst Kevin's bubble, but the votes in both Colorado and California do not appear to have much at all to say about a wllingness to pay taxes. Each, rather, is a vote against constraints on government spending. And, therein lies the problem: We voters do not like to limit on government spending any more than we want to limit our own spending. But this says nothing about our willingness to pay taxes any more than it says anything about our willingness to pay our credit card debts.

I'm not sure what the point of all of this is, for I have no solutions. I guess I am just discouraged, and I know I fear for my children.