Krugman - The Economy Maestro Loses His Touch

I used to be a great admirer of Mr. Greenspan. But something has gone very wrong with the maestro.

Back in 2001, Mr. Greenspan lent crucial political aid to the first Bush tax cut, arguing that such a cut was necessary to prevent, yes, excessive budget surpluses and too rapid a payoff of the federal government's debt. He should have known better _ it wasn't hard, even then, to figure out that those huge projected surpluses were largely fantasy. But he tied himself in knots to find a way to give his political friends what they wanted.

He could have redeemed himself by changing his mind once record surpluses turned into record deficits, but he didn't. Mr. Greenspan still talks about the evils of deficits, but refuses to say the obvious: that if we are ever to balance the budget again, many of the Bush tax cuts will have to be reversed once the economy recovers. Instead, Mr. Greenspan offers platitudes about spending restraint: ``I would prefer to find the situation in which spending was constrained, the economy was growing and that tax cuts were capable of being initiated without creating fiscal problems.'' (``I would prefer a world in which Julia Roberts was calling me,'' Representative Brad Sherman replied, ``but that is unlikely to occur.'') In short, the budget is in a mess, and Mr. Greenspan is one of the main culprits. And that, suggest some people I've talked to, may explain how he misjudged his recent testimony so badly.

Their theory goes like this: Mr. Greenspan must know that his legacy is in tatters _ at the rate things are going, history will remember him not as the maestro of the new economy, but as an accomplice in America's descent into debt. For his own self-esteem, he has to believe that things will somehow turn out all right.