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Greenspan Is Critical Of Bush in Memoir
Former Fed Chairman Has Praise for Clinton

By Bob Woodward
Washington Post Staff Writer
Saturday, September 15, 2007

Alan Greenspan, who served as Federal Reserve chairman for 18 years and was the leading Republican economist for the past three decades, levels unusually harsh criticism at President Bush and the Republican Party in his new book, arguing that Bush abandoned the central conservative principle of fiscal restraint.

While condemning Democrats, too, for rampant federal spending, he offers Bill Clinton an exemption. The former president emerges as the political hero of "The Age of Turbulence: Adventures in a New World," Greenspan's 531-page memoir, which is being published Monday.

Greenspan, who had an eight-year alliance with Clinton and Democratic Treasury secretaries in the 1990s, praises Clinton's mind and his tough anti-deficit policies, calling the former president's 1993 economic plan "an act of political courage."

But he expresses deep disappointment with Bush. "My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan writes. "Not exercising the veto power became a hallmark of the Bush presidency. . . . To my mind, Bush's collaborate-don't-confront approach was a major mistake."

Greenspan accuses the Republicans who presided over the party's majority in the House until last year of being too eager to tolerate excessive federal spending in exchange for political opportunity. The Republicans, he says, deserved to lose control of the Senate and House in last year's elections. "The Republicans in Congress lost their way," Greenspan writes. "They swapped principle for power. They ended up with neither."

He singles out J. Dennis Hastert, the Illinois Republican who was House speaker until January, and Tom DeLay, the Texan who was majority leader until he resigned after being indicted for violating campaign finance laws in his home state.

"House Speaker Hastert and House majority leader Tom DeLay seemed readily inclined to loosen the federal purse strings any time it might help add a few more seats to the Republican majority," he writes.

He adds three pages later: "I don't think the Democrats won. It was the Republicans who lost. The Democrats came to power in the Congress because they were the only party left standing."

Greenspan, 81, indirectly criticizes his friend and colleague from the Ford administration, Vice President Cheney. Former Bush Treasury Secretary Paul H. O'Neill has quoted Cheney as once saying, "Reagan proved deficits don't matter."

Greenspan says, " 'Deficits don't matter,' to my chagrin became part of the Republicans' rhetoric."

He argues that "deficits must matter" and that uncontrolled government spending and borrowing can produce high inflation "and economic devastation."

When Bush and Cheney won the 2000 election, Greenspan writes, "I thought we had a golden opportunity to advance the ideals of effective, fiscally conservative government and free markets. . . . I was soon to see my old friends veer off to unexpected directions."

He says, "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences." The large, anticipated federal budget surpluses that were the basis for Bush's initial $1.35 trillion tax cut "were gone six to nine months after George W. Bush took office." So Bush's goals "were no longer entirely appropriate. He continued to pursue his presidential campaign promises nonetheless."

Greenspan was intensely criticized for endorsing a large tax cut in 2001 in congressional testimony during the first weeks of the Bush administration. He notes that he was recommending any tax cut, even a smaller one proposed by some Democrats. But he acknowledges that those who had warned him about the perception he was backing Bush's plan were right. "The tax-cut testimony proved to be politically explosive," he writes.

Yet, he adds: "While politics had not been my intent, I'd misjudged the emotions of the moment. . . . Yet I'd have given the same testimony if Al Gore had been president."

By the end of last year, Greenspan writes with some bitterness, Washington was "harboring a dysfunctional government. . . . Governance has become dangerously dysfunctional."

However, he calls Clinton a "risk taker" who had shown a "preference for dealing in facts," and presents Clinton and himself almost as soul mates. "Here was a fellow information hound. . . . We both read books and were curious and thoughtful about the world. . . . I never ceased to be surprised by his fascination with economic detail: the effect of Canadian lumber on housing prices and inflation. . . . He had an eye for the big picture too."

During Clinton's first weeks as president, Greenspan went to the Oval Office and explained the danger of not confronting the federal deficit. Unless the deficits were cut, there could be "a financial crisis," Greenspan told the president. "The hard truth was that Reagan had borrowed from Clinton, and Clinton was having to pay it back. I was impressed that he did not seem to be trying to fudge reality to the extent politicians ordinarily do. He was forcing himself to live in the real world."

Dealing with a budget surplus in his second term, Clinton proposed devoting the extra money to "save Social Security first." Greenspan writes, "I played no role in finding the answer, but I had to admire the one Clinton and his policymakers came up with."

Greenspan interviewed Clinton for the book and clearly admires him. "President Clinton's old-fashioned attitude toward debt might have had a more lasting effect on the nation's priorities. Instead, his influence was diluted by the uproar about Monica Lewinsky." When he first heard and read details of the Clinton-Lewinsky encounters, Greenspan writes, "I was incredulous. 'There is no way these stories could be correct,' I told my friends. 'No way.' " Later, when it was verified, Greenspan says, "I wondered how the president could take such a risk. It seemed so alien to the Bill Clinton I knew, and made me feel disappointed and sad."

Known for his restrained if not incomprehensible public statements over the past several decades, Greenspan's direct criticism of Bush and his economic policies comes as the economy is emerging as an issue in the 2008 presidential race. And the man Greenspan praises so highly for fiscal probity is married to the current front-runner for the Democratic nomination, Sen. Hillary Rodham Clinton of New York.

The politically charged observations are scattered through the first half of the book, in which Greenspan offers a standard memoir covering his birth in the Washington Heights neighborhood of New York City in 1926 through his years as Fed chairman, from when he was appointed in 1987 by President Ronald Reagan to his retirement in 2006. His theme is the unequaled power of free-market capitalism; Greenspan calls himself a "libertarian Republican."

The second half offers a graduate education in global economics that is at times lucid and at times dense. Greenspan occasionally slips into his notoriously complicated Fedspeak, touring the world with detailed analysis of the global economy and the prospects in Japan, Britain, France, China, Russia, India and just about everywhere else.

He clearly considers China the big economic question of the future. "I have no doubt that the Communist Party of China can maintain an authoritarian, quasi-capitalist, relatively prosperous regime for a time. But without the political safety valve of the democratic process, I doubt the long-term success of such a regime," he writes.

"The Age of Turbulence" is likely to be mined word by word on Wall Street, where the Masters of the Universe will seek clues to how to make billions. Greenspan dives deep into his economic data, his experiences, his philosophy and meetings with world political and economic leaders.

He explains how an advanced economy hinges on property rights, the rule of law, a culture of trust, contracts, debt, reputation, self-interest and "creative destruction" -- the scrapping of old technologies and processes.

He argues, for example, that the loss of manufacturing jobs in the United States -- from the steel, automobile and textile industries to computers and telecommunications -- "is a plus, not a minus, to the American standard of living." He maintains that immigration reform, "by opening up the United States to the world's very large and growing pool of skilled workers," will help reduce the inequality of incomes.

Without elaborating, he writes, "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."

Looking ahead to 2030, he predicts that the U.S. gross domestic product will be 75 percent larger than it is now. His most dire forecast is that if the Federal Reserve is prevented from constraining inflation, the 10-year Treasury note would be "flirting with a double-digit yield sometime before 2030, compared with under 5 percent in 2006."

Greenspan has nothing but praise for hedge funds, which he describes as "a vibrant trillion-dollar industry dominated by U.S. firms." He claims that hedge funds help eliminate inefficiency in the markets. "They are essentially free of government regulation, and I hope they will remain so." He scoffs at proposals to regulate them, declaring, "Why do we wish to inhibit the pollinating bees of Wall Street?"

For all his wonkish ways, Greenspan writes with delight about his marriage to journalist Andrea Mitchell and their travels, friends and mutual love of classical music. He knows how to enjoy a good Vivaldi cello concerto in Venice.

Though cautious about the coming decades, Greenspan ultimately shows a flash of hope at the end of his memoir. "Adaptation is in our nature," he writes, "a fact that leads me to be deeply optimistic about our future."

Brady Dennis and Evelyn Duffy contributed to this report.

EDITOR'S NOTE: Bob Woodward, an assistant managing editor of The Washington Post, is author of "Maestro: Greenspan's Fed and the American Boom," published in 2000. In his book, Greenspan acknowledges that in writing "The Age of Turbulence," he used interviews he had given Woodward.

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