Greenspan, Rubin, and Herbert Hoover

Herbert Hoover's disciples are making noises even as America moves closer towards a double dip recession.

Fed Chair Alan Greenspan tells the New York Times all the Bush tax cuts should expire as scheduled, even those that benefit the middle class and not the rich. His reason: the nation's looming deficit requires it.

On Sunday, former Treasury Secretary Robert Rubin, appearing on CNN, says any further effort to stimulate the economy would be "counter productive," and that policy makers instead should craft a deficit-reduction plan.

Greenspan is only partly wrong. The Bush tax cuts should expire for the top 2 percent of filers (those earning over $250,000) because they save rather than spend a large portion of their incomes, and we need all the spending we can get. The cuts should be extended for everyone else because they'll spend them. The top 2 percent now receive almost a quarter of total national income, which is one reason why the middle class doesn't have the purchasing power to lift the economy on its own. The best way to give them even more purchasing power would be to give the middle class a larger tax cut -- say, a payroll tax holiday on the first $20,000 of income.

Rubin is entirely wrong. As Friday's jobs report shows, the gap between total private spending (consumers plus business plus net exports), on the one side, and the nation's capacity to produce goods and services at or near full employment, on the other, is still a chasm. So government needs to do more spending now, in the short term, in order to get people back to work and the economy back on track.

In 1999, both Greenspan and Rubin urged Congress to repeal the Glass-Steagall Act that had safely separated commercial from investment banking. In 2000 they argued against allowing the Commodity Futures Trading Corporation to regulate derivatives. Until recently, Rubin ran the executive committee at Citigroup, whose excesses required a massive taxpayer bailout. In 2001 Greenspan supported the Bush tax cuts that blew a gigantic hole in the federal deficit and mostly benefited the wealthy. In 2002 he lowered interest rates to near zero but refused to oversee how banks were using their almost-free borrowings.

Both Greenspan and Rubin are deficit hawks. So was Herbert Hoover and so was Hoover's Treasury Secretary Andrew Mellon. And look what Hoover and Mellon got us into. When we least need him, Hoover is being exhumed.

This post originally appeared at RobertReich.org.

 

 

 

Comments

[AmyInNH]

11:41 PM on 08/10/2010

True, consumer spending creates jobs but I don't know that anyone's going to go on a spending spree if they're worried about their job(s) and secondly, and most importantly, even if the money was spent, it's going to create jobs not in the US. Consider most of our purchases are made in China.

[milliband]

09:32 PM on 08/10/2010

Gee, Robert Rubin is morphing into the ecomomic counterpoint of Bill Kristol- every policy he favors
is unerringly wrong.

[memi]

03:23 PM on 08/10/2010

Robert Rubin is now giving advice on the economy? lol

This devious schemer--when he was at the Treasury, together with ignoramuses Greenspan, Timmy Geithner (his protege) and "Girls can't do Math" Larry Summers nee of Harvard--devised a vicious strategy to get rid of Brooksley BORN, then the head of the CFTC. She had courageously defied them by telling them she wanted to go ahead and regulate the dangerous Wall Street Derivatives Casinos, advising that widespread market Fraud should be controlled immediately. This was 1998. What did the boys do? They forced her to resign (Born was a former colleague and a friend of Hillary Clinton) the very next year.

Rubin is was sued for close to a billion dollars for fraudulent transactions, had forced the only person who wanted to regulate the derivatives that have made him a rich Goldman Sachs millionaire alumni. And , like Greenspan, agreed that "the Free Markets can deal with fraud themselves; don't need regulation by anyone"!

Robert Rubin, like Timmy and Larry and Green(truly!)spam should move out of Washington. And Rubin at least should keep his mouth shut!

[party-of-one]

01:25 PM on 08/11/2010

Interesting comment. You seem very selective in the focus of your rage, however.

Why do you not also hold Bill Clinton responsible?

He appointed them all.

He was aware and supportive of their actions, including their treatment of Hillary's friend Brookley Born.

He negotiated with the GOP Congress to de-regulate the financial service industry

He signed the de-regulation into LAW, openning the door wide to the greed, reckless risks, and profiteering that transformed Wall Street into a casino and eventually collapsed the econonmy

He then left office and cashed in for mega-millions in HUGE "speaking and consutling fees" from grateful corporations inculding Golman Sachs.

[SWforever]

08:10 AM on 08/10/2010

In my view, the Reich's article hits the nail on the head! Greenspan's and Rubin's advice makes me remember how I felt a few months into the election of Obama. When I voted for Obama, I believed that it was an historic repeat of the FDR vs.Hoover election. After the first few months when Obama appointed Geithner and Summers, I thought "oh, my goodness", I had the political equation upside down. We didn't elect another "FDR", we elected another "Hoover Adminstration".

[Ty2010]

01:16 AM on 08/10/2010

I make comments similar to this article and many times they're censored!! Maybe that means popular views are changing.

[Trublulu]

12:58 AM on 08/10/2010

For once David Gregory on "Meet The Press" Sunday asked Minority Leader Boehner an important question. It was: "If you are saying that the tax cuts for the richest Americans should be extended, isn't that deficit borrowing? Where will the money for the tax cuts come from.....??" Boehner stuttered and stammered but really didn't give any sensible reply. His orange face gradually turned red.

[lcarliner]

11:48 PM on 08/09/2010

Just as the public option is still badly needed in any healthcare reform to help control the behavior of insurance companies, a public option business banking system for small businesses is likewise needed NOW! In the meantime, measures to PROHIBIT financial institutions that receive zero or no interest loans from the Federal Reserve rediscount windows be PROHIBITED from buying interest bearing US or other sovereign debt with these funds! Maybe this would force the banks to begin lending to small businesses again! It is obsurd for the banks to be allowed to play a role in accelerating the growth in the nationl debt from these printing press funds!

[Ty2010]

01:19 AM on 08/10/2010

Growth through lending got us here, we need real growth through profits, main street profits, Wall street profits are entirely useless to the real economy.

[Norman Allen]

11:31 PM on 08/09/2010

I find it interesting those responsible for the demise of a healthy economy are offering suggestions about taxes and deficit reduction. Aren't tax cuts for the wealthy, two wars funded by borrowed money, destruction of the laws that controlled businesses (especially banks), exporting American workers' jobs overseas responsible for the tanked economy. And these guys think those same policies will rebound the economy? Insanity: doing the same thing over and over and expecting a better outcome....Thanks, Dr. Reich.

[Donnie4488]

10:59 PM on 08/09/2010

I will say this until I'm BAH-LOO in the face...the stimulus money should have gone directly to the people.There was enough money given out to give every taxpayer a couple hundred grand.You want increased spending? Houses would be bought and paid off.Cars would be purchased.Education would be paid for.Anybody think of anything else that they could do with $200,000.00?

[cvwilson]

11:59 PM on 08/09/2010

First of all, your math is wrong. $870,000,000,000. divided by 305,000,000 people is $2,852.46 per person. Secondly, 40% of the stimulus was middle class tax cuts and supplements to social security and unemployment benefits.

[Donnie4488]

09:23 AM on 08/10/2010

Re-read my post.I wrote"every taxpayer".

[theprogressiveanalyst]

08:05 PM on 08/09/2010

In addition to the lesson of Hoover, we have the present day lesson of Ireland. As pointed out in The Huff Post recently by a British journalist, and in the LA Times last week, reducing the deficit and government spending is a recipe for disaster. The Irish government adopted Republican policies and the result is an unemployment rate of 13.4% and a drop in the GDP of approximately 12%. Paul Krugman was right in the first place; we need a larger stimulus. Need further proof? When adjusting for the size of our respective economies, China instituted a stimulus about twice as large as ours and most all of it went for construction projects and their economy roared back to life.

[econ1]

06:58 PM on 08/09/2010

The calls from Bush on to just "go shopping" to cure the economy are ludicrous. Whether it is big screen tv's or chrome wheels or high speed rail, a significant part of the mess we are in is because we (individually and as a government) borrowed and spent too much on a lot of stuff we didn't need and which wouldn't pay for itself. Germany and Canada are good examples of countries with higher savings rates and stronger economies.

[yougg]

06:39 PM on 08/09/2010

Greenspand and Rubin need to go bye bye. They had their contributions to the disaster. Actually our middle class is shrinking pretty bad. The Bush tax cuts have to go. Why don't people remember what Reagan did with the degulation of the savings and loans/thrifts in the 1980's?

[rosebatch]

08:36 PM on 08/09/2010

Rubin needs to go bye bye in Federal prison once RICO is applied to him and Citi for being the largest launderers of drug money in the world. Levels of Mexican drug money have skyrocketed since Rubin helped implement NAFTA and cripple the legal Mexican economy.

[PAbodysurfer]

06:27 PM on 08/09/2010

Rubin, and others of his ilk, time has come and gone. Rubin and Greenspan were horribly wrong on a number of issues, but at least Greenspan has realized that some of his previous pronouncements were were wrong and need to be righted.

I do not believe there is a mad rush to fall in line behind Rubin's latest statement and like eggs over easy, should be digested with a bit of salt....

[bap2104]

06:25 PM on 08/09/2010

It would be economically beneficial for all Americans to receive a tax cut, and it should be accompanied by a massive reduction in government spending. Since government's revenue, in contrast to all other institutions, is coerced from the taxpayers rather than paid voluntarily, it is far more realistic to regard all government expenditures as a depredation upon, rather than an addition to, the national product. In a recession/depression, it is particularly important that the government's fiscal burden on the economy be reduced. In the first place, it is especially important at such a time to free the economy from the heavy load of the government's acquisition of resources, and second, a lowering of the burden will tend to shift total spending so as to increase investment and lower consumption, thus providing a double impetus toward curing a recession/depression. Furthermore, how can the author possibly call Herbert Hoover a deficit hawk? Let’s just look at the facts. In 1929, government revenues were $5.2 billion and government expenditures were $4 billion. In 1930, government revenues were $4.4 billion and government expenditures were $4.2 billion. In 1931, government revenues were $3.4 billion and government expenditures were $5.5 billion. In 1932, government revenues were $3 billion and government expenditures were $4.4 billion. In other words, the drastic fall in revenues during Hoover’s tenure were met with increased government expenditures. Given that, it’s hard to call Hoover a deficit hawk.

[bsazur]

10:09 PM on 08/09/2010

Isn't it astounding how widely it is accepted as fact that Hoover was a fiscal conservative?
Your #1 fan!

[GaelicWench]

06:18 PM on 08/09/2010

I put absolutely no stock in what Greenspan suggests, advises, ad nauseum. When he refused to listen to those that were telling him about the dangers of derivatives back in the mid-90s, it led to all hell breaking loose on Wall Street, beginning with the housing bubble.