NYT : A ‘Disappointed’ Greenspan Lashes Out at Bush’s Economic Policies

A ‘Disappointed’ Greenspan Lashes Out at Bush’s Economic Policies

By EDMUND L. ANDREWS | September 17, 2007

WASHINGTON, Sept. 16 — After nearly two decades as chairman of the Federal Reserve, Alan Greenspan wants to solidify his standing in history.

In an interview timed with the release of his memoir Monday, Mr. Greenspan sought to distance himself from the economic policies of President Bush and refute critics who say his policies at the Fed contributed to the housing bubble and bust that is now roiling the economy.

Mr. Greenspan unleashed bottled-up frustration about President Bush, Vice President Dick Cheney and Republican leaders in Congress who, he contends, put politics ahead of Republican goals like fiscal discipline and lower government spending.

“I’m just very disappointed,” he said glumly, as he sat in his living room. “Smaller government, lower spending, lower taxes, less regulation — they had the resources to do it, they had the knowledge to do it, they had the political majorities to do it. And they didn’t.”

In the end, he said, “political control trumped policy, and they achieved neither political control nor policy.”

Mr. Greenspan, a lifelong Republican who presided over the longest sustained economic expansion in American history, sounded frustrated that neither a Republican White House nor Republican leaders in Congress were heeding his quiet pleas for greater fiscal discipline.

Mr. Greenspan said he met frequently at the White House with President Bush and Vice President Cheney, but his enthusiasm for the new administration cooled as he discovered that Mr. Bush ignored much of his advice.

In his first term, Mr. Bush would rarely let a week go by without visiting a small business or a camera-friendly factory to extol entrepreneurship or the importance of tax cuts. But back at the White House, Mr. Greenspan got virtually no response to his advice that the president veto spending bills. Mr. Greenspan said he was told his recommendations would be “taken under advisement.”

His observations are in line with those of others who engaged Mr. Bush frequently, including the former Treasury secretary, Paul H. O’Neill, who was fired in December 2002. After the Sept. 11 attacks, they said, Mr. Bush would become animated and even passionate about counterterrorism or the war in Iraq. But they said that broader economic discussions bored him, unless he could take them to the factory floor.

Mr. Greenspan has always been acutely aware of the explosive impact that his public comments could have in both political and economic circles. He never criticized specific Republican or Democratic politicians while he was at the Federal Reserve, even when he was under attack from one side or the other.

But in the interview, Mr. Greenspan seemed dismayed that leaders in his own party paid little heed to his pleas for spending restraint and for “pay-as-you-go” rules that would require Congress to offset the cost of new tax cuts with savings elsewhere. He repeated the conclusion about the Republicans’ loss of Congressional control in the 2006 elections: “They deserved to lose.”

Mr. Greenspan also spelled out his own views about the war in Iraq: he supported the invasion, he says, not because Saddam Hussein might have had weapons of mass destruction, but because Saddam had shown a clear desire to capture the Middle East’s oil fields.

“I supported taking out Saddam, because he was moving inexorably toward taking the world’s oil resources,” he said. “Iraq was a far greater threat than Iran to the world scene.”

But Mr. Greenspan also seemed intent on protecting his reputation in history about a debacle that is a focus of his successors at the Federal Reserve: the housing bubble that peaked while he was chairman of the Fed and the bust that now threatens to tip the overall economy into a recession.

Though he says little about the issue in his book, “The Age of Turbulence: Adventures in a New World,” (Penguin Press, $35) Mr. Greenspan sought to staunchly refute charges that he contributed to the housing bubble by cutting interest rates from 2001 until 2004 and by making little effort to regulate the explosion of risky new mortgages.

On Tuesday, after a month of almost unremitting turmoil in financial markets, Ben S. Bernanke, Mr. Greenspan’s successor as Fed chairman, will preside over a crucial Fed policy meeting to decide whether and how much to lower interest rates in order to prevent a broader economic downturn.

Mr. Greenspan, 81, acknowledged that the housing frenzy had been pumped up in part because of very low interest rates and in part because of the growing willingness of mortgage lenders to underwrite dubious and often fraudulent loans that were much bigger than many borrowers could realistically afford.

But he said it was a mistake to blame the Fed, which needed to reduce interest rates in order to fend off the recession of 2001 and what many economists thought was a real risk of the kind of “deflation,” an across-the-board drop in consumer prices, that had plagued Japan.

John B. Taylor, a professor of economics at Stanford University and a former under secretary of the Treasury under President Bush, recently argued that the Fed’s rate cuts after 2001 appeared to have exaggerated both the housing boom and bust.

“There has been a bit of historical revisionism going on,” Mr. Greenspan grumbled. The real force behind soaring real estate prices, he said, was a global one: a drop in worldwide inflation and interest rates, in part because of the end of the Cold War and the rise of China as a manufacturing colossus.

“The housing boom is not an American phenomenon — it’s a worldwide phenomenon,” Mr. Greenspan said. “The evidence is quite overwhelming that what we are going through is a consequence of the fall of the Soviet Union and the shift of a billion workers from central planning in to the labor market.”

The United States was only one of 40 countries that experience a housing boom after 2000, he said, and all of the booms were driven in part by low interest rates.

“If you line up all the major developed countries and all the developing countries, leaving out the Zimbabwes, inflation rates were all in single digits. This is utterly unprecedented, there is no history like this. And the consequence was a fairly dramatic decline in real interest rates, which created dramatic housing price increases around the world.”

David E. Sanger contributed reporting.