The Maestro Vs. The Expert Hack
You can take our Fed chair at his word. Not Krugman.


Donald L. Luskin

There’s a reason why they call Alan Greenspan the Maestro. In testimony to the Senate Finance Committee last Wednesday, the Fed chairman offered a compelling endorsement of President Bush’s Social Security reform with personal accounts that was both powerful and thoughtful, both persuasive and nuanced.

What was Paul Krugman’s reaction in his Friday New York Times column? You won’t be surprised: According to America’s most dangerous liberal pundit, Greenspan “has betrayed the trust placed in Fed chairmen, and deserves to be treated as just another partisan hack.” This isn’t the first time Krugman has called Greenspan a “hack.” That’s the word he uses when the Maestro says something with which Krugman disagrees. It works the other way, too, of course. Less than a year ago Krugman cited Greenspan an “expert” when he said something with which Krugman agreed.

If Greenspan is, by turns, an “expert” or a “hack,” what does that make Krugman? Based on all the astonishingly brazen distortions and outright lies in his latest column about Greenspan, Krugman is nothing less than an “expert hack.”

There’s no other word for it than “lie” when this expert hack claims that “This week, Mr. Greenspan offered no excuse for supporting privatization.” Supporters of personal accounts wouldn’t say Greenspan needed an “excuse” in the first place. But be that as it may, Greenspan offered thousands of words worth of reasons. As just one of many examples, read this exchange between Greenspan and Idaho’s Republican senator Mike Crapo:

SEN. CRAPO: … you had said that you believe that we should look at a personal account.

MR. GREENSPAN: Oh, indeed I do. And –

SEN. CRAPO: Could you give us, just quickly, your reasons for that?

MR. GREENSPAN: Well, basically it’s got to do with the issue of personal accounts have far greater probability — indeed, almost it’s built into their nature — of being fully funded. … it’s strictly a question of where can we create a system which we get full funding. And it didn’t matter 20, 30, 40 years ago, because the ratio of workers to retirees was quite high and that, therefore, the implicit tax per worker for each retiree was very small. But now we have 3.3 workers for every retiree, and that number is falling quickly.

Krugman, by the way, calls that statement of fact about the falling numbers of workers for every retiree, a “seriously exaggerated … picture of the demographic problem.” But it wasn’t so long ago that Krugman was citing the same statistics himself in the pages of the Times, and hyperbolizing that “if you think 30 years ahead, you wonder whether the Republic can be saved.”

And there’s no other word for it than “lie” when Krugman claims that Greenspan “agreed” that “the administration’s plan … would lead to a dangerous increase in debt.” Krugman’s own newspaper — America’s supposed “newspaper of record” — had reported the day before that “Democrats had been hoping that Mr. Greenspan, who has long advocated steps to bring down the federal budget deficit, would wave a red flag about the potentially huge borrowing that Mr. Bush’s Social Security plan is likely to entail. He avoided doing so.”

Yes, Greenspan acknowledged that the advent of personal accounts would require the addition of explicit debt. But he noted — correctly — that such debt would not be new as it would take the place of Social Security’s already existing implicit debt: “obviously you’re not changing the liabilities … involved; you’re just merely switching the assets to the private sector.” His only caution was to note — again, correctly — that we don’t know how markets will react to such a switch. So Greenspan commended the Bush administration’s one-step-at-a-time approach to personal accounts:

I’m glad that if we’re going to move in that direction, we’re going to move slowly and test the waters, because I think it’s a good thing to do over the longer run. And eventually, because the pay-as-you-system, in my judgment, is going to be very difficult to manage, we are going to need an alternative.

Why, by the way, is Greenspan cautious on the market’s reaction and advocate that we move slowly? Not because of “a dangerous increase in debt” — but rather because markets can’t be sure what a capricious Congress may do decades in the future that might undo the benefits created today by personal accounts. Krugman tries to use this to catch Greenspan in a contradiction, quoting him saying “the problem is that you cannot commit future Congresses…”

Yes, that is a problem, though it’s hardly a reason not to reform Social Security with personal accounts, considering that the capriciousness of Congress is a risk factor in any event. But bully for Greenspan for honestly talking about the problem. And shame on Krugman for seizing on a cautious note from Greenspan as a “gotcha.” I guess this is why Democrats say they love nuance so much — whenever a Republican makes a nuanced statement, Democrats can position it as a contradiction.

How can Krugman tell such lies? And how can he lie about something that millions of Americans heard with their own ears in real time: testimony by Greenspan that was broadcast live on several cable news networks? Well, this is not the first time Krugman has lapsed into wishful thinking in front of his television set and reported his fantasies as facts in the New York Times. Remember the time, before the election, he claimed that he heard bond traders in the Chicago markets chanting “Kerry, Kerry” when a disappointing jobs number came out? I’ve reviewed the tapes from the CNBC program Krugman claims he was watching. There was no such chanting. Krugman simply made it up out of thin air. He lied then, and he’s lying now.

Despite Krugman’s lies then, Bush was re-elected. And despite Krugman’s lies now, Bush will get Social Security reform with personal accounts enacted. The truth is that Bush’s reform initiative got a tremendous boost from Greenspan’s endorsement last Wednesday. What the Maestro really said will carry a lot more weight than what an expert hack wrote about it in the Times.

– Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your visit to his blog and your comments at [email protected].


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