The New York Times  [Printer-friendly version]
March 4, 2005


By Paul Krugman

Four years ago, Alan Greenspan urged Congress to cut taxes, asserting
that the federal government was in imminent danger of paying off too
much debt.

On Wednesday the Fed chairman warned Congress of the opposite fiscal
danger: he asserted that there would be large budget deficits for the
foreseeable future, leading to an unsustainable rise in federal debt.
But he counseled against reversing the tax cuts, calling instead for
cuts in Social Security, Medicare and Medicaid.

Does anyone still take Mr. Greenspan's pose as a nonpartisan font of
wisdom seriously?

When Mr. Greenspan made his contorted argument for tax cuts back in
2001, his reputation made it hard for many observers to admit the
obvious: he was mainly looking for some way to do the Bush
administration a political favor. But there's no reason to be taken in
by his equally weak, contorted argument against reversing those cuts

To put Mr. Greenspan's game of fiscal three-card monte in perspective,
remember that the push for Social Security privatization is only part
of the right's strategy for dismantling the New Deal and the Great
Society. The other big piece of that strategy is the use of tax cuts
to "starve the beast."

Until the 1970's conservatives tended to be open about their disdain
for Social Security and Medicare. But honesty was bad politics,
because voters value those programs.

So conservative intellectuals proposed a bait-and-switch strategy:
First, advocate tax cuts, using whatever tactics you think may work --
supply-side economics, inflated budget projections, whatever. Then use
the resulting deficits to argue for slashing government spending.

And that's the story of the last four years. In 2001, President Bush
and Mr. Greenspan justified tax cuts with sunny predictions that the
budget would remain comfortably in surplus. But Mr. Bush's advisers
knew that the tax cuts would probably cause budget problems, and
welcomed the prospect.

In fact, Mr. Bush celebrated the budget's initial slide into deficit.
In the summer of 2001 he called plunging federal revenue "incredibly
positive news" because it would "put a straitjacket" on federal

To keep that straitjacket on, however, those who sold tax cuts with
the assurance that they were easily affordable must convince the
public that the cuts can't be reversed now that those assurances have
proved false. And Mr. Greenspan has once again tried to come to the
president's aid, insisting this week that we should deal with deficits
"primarily, if not wholly," by slashing Social Security and Medicare
because tax increases would "pose significant risks to economic

Really? America prospered for half a century under a level of federal
taxes higher than the one we face today. According to the
administration's own estimates, Mr. Bush's second term will see the
lowest tax take as a percentage of G.D.P. since the Truman
administration. And don't forget that President Clinton's 1993 tax
increase ushered in an economic boom. Why, exactly, are tax increases
out of the question?

O.K., enough about Mr. Greenspan. The real news is the growing
evidence that the political theory behind the Bush tax cuts was as
wrong as the economic theory.

According to starve-the-beast doctrine, right-wing politicians can use
the big deficits generated by tax cuts as an excuse to slash social
insurance programs. Mr. Bush's advisers thought that it would prove
especially easy to sell benefit cuts in the context of Social Security
privatization because the president could pretend that a plan that
sharply cut benefits would actually be good for workers.

But the theory isn't working. As soon as voters heard that
privatization would involve benefit cuts, support for Social Security
"reform" plunged. Another sign of the theory's falsity: across the
nation, Republican governors, finding that voters really want adequate
public services, are talking about tax increases.

The best bet now is that Mr. Bush will manage to make the poor suffer,
but fail to make a dent in the great middle-class entitlement

And the consequence of the failure of the starve-the-beast theory is a
looming fiscal crisis -- Mr. Greenspan isn't wrong about that. The
middle class won't give up programs that are essential to its
financial security; the right won't give up tax cuts that it sold on
false pretenses. The only question now is when foreign investors, who
have financed our deficits so far, will decide to pull the plug.