On his CNN show today, Fareed Zakaria publicly admonished former Treasury Secretary Henry Paulsen and former Chairman of the Fed Alan Greenspan for their, in his opinion, gutless evasion of the need for tax increases. He replayed part of their interview with David Gregory on last week’s Meet The Press. They both expressed a total commitment to dealing with the deficit as the most serious problem facing the economy today. And yet, when asked if a tax increase at this time should be considered, both backed away. They felt that it would lead to a slowdown of the economy in the middle of a recession, and greater job loss.
Zakaria was both angry and confused. He said that the timidity of both men was symptomatic of why the public has lost any confidence in Washington to prevent the coming catastrophe. Here were major public figures who could not commit to the painful choices that, all agreed, were absolutely necessary, but that no politician in Washington, including the President, was willing to make. He was particularly upset that these two men would not commit themselves even though they no longer held public posts. What possible reason could they have for not stating the obvious?
I can understand Zakaria’s anger, but not his confusion. If anything, Greenspan and Paulsen will be even more reluctant to state the obvious now, when they are not officially making economic policy. This is because the public can be expected to interpret their statements as the real deal; that is, what they think when they are not supposed to influence the market. Of course, it will have the opposite effect.
We are crawling out of a deep recession now. Paulsen and Greenberg may be government outsiders now, but in the main arena of action, the financial markets, they loom as large as ever, especially Greenspan. Even a qualified endorsement of tax increases would be picked up by the media, and magnified. Inevitably, the market would react, but exactly how is open to question. But why take that risk? The tremors would start within 24 hours, and could get worse. I’m sure both men were imagining what they would say in the glare of a crisis that they created. Timid? Sure, they could live with that.