Rubin Praises Stance Of Greenspan on Deficits
Saturday, August 27, 2005
JACKSON HOLE, Wyo., Aug. 26 -- Former Treasury secretary Robert E. Rubin, wading into a debate about the proper role of the Federal Reserve in national budget policy, Friday praised Alan Greenspan for actively opposing large federal budget deficits during his 18 years as Federal Reserve chairman.
Rubin, who served under President Bill Clinton and is now a Citigroup Inc. director, blamed President Bush's 2001 tax cuts for helping swing the budget from surplus that year to deficits since.
Greenspan "stands for the principle of fiscal discipline," Rubin said in an interview before he delivered a speech at the symposium here on Greenspan's legacy at the central bank.
Bush administration officials dispute Rubin's explanation for the current budget deficits.
"The greatest single cause of the fiscal surplus of the 1990s was the stock market bubble, which led to an unsustainably high level of economic activity and tax revenues," said Ben S. Bernanke, the chairman of Bush's Council of Economic Advisers.
Together with the 2001 terrorist attacks and the war on terror, the collapse of the bubble was the major cause of the shift toward deficits after 2000, said Bernanke, who is attending the conference.
The Fed oversees the nation's monetary policy, seeking to keep inflation and unemployment low by essentially controlling the money supply through changes in short-term interest rates, which adjust the availability of credit.
The Fed is supposed to craft monetary policy independent of political pressures from the White House or Congress, something economists agree it has done under Greenspan.
Some economists, however, have criticized Greenspan for venturing beyond monetary policy to offer his personal opinions on fiscal policy -- which involves tax and spending decisions, how to manage deficits or surpluses, and whether and how to alter Social Security.
"We question the wisdom of a central bank head taking public positions on political issues unrelated to monetary policy," former Fed vice chairman Alan S. Blinder and Ricardo Reis, both Princeton University economists, wrote in the first paper presented here Friday.
But Rubin, in his prepared remarks, took aim at such thinking. "I believe the Fed should not only pursue sound and disciplined monetary policy, but should also stand for the principle of sound and disciplined fiscal policy."
Bernanke declined to respond to Rubin's suggestion that the Fed should oppose budget deficits.
Rubin praised Greenspan for advocating deficit reduction in 1993, both in discussions with Clinton and in his public comments. And he said Greenspan "never engaged, correctly in my view," in the political debate about Clinton's proposals to reduce the deficit through specific tax increases.
Rubin also countered charges by many Democrats -- including Sen. Hillary Rodham Clinton (N.Y.) earlier this year -- that Greenspan bears responsibility for current budget deficits because of his public call for tax cuts in January 2001, just days after Bush was inaugurated.
When the federal government was facing huge projected budget surpluses in 2001, Greenspan urged Congress to reduce them by cutting taxes. But he also warned that the forecasts could be wrong and suggested the cuts be structured with "triggers" that would alter them automatically if deficits reappeared.
Greenspan never endorsed Bush's tax cut proposal specifically, but his general support for tax cuts helped win passage of the president's package, which was enacted without such triggers. Greenspan has said since that it is unfair for critics to blame him for the deficits, since his advice on triggers was ignored.
Rubin described Greenspan's 2001 testimony as offering "a truly complex framework for making the decision" and added, "The framework, on balance, was right."