ROBERT SIEGEL, host:
The former Fed chairman Alan Greenspan says yesterday's interest rate cut was the right move in the context of what the various different probabilities are. Greenspan is the author of a new memoir called "The Age of Turbulence" and he was in our studio today.
Since Sunday night when you appeared on "60 Minutes" on CBS, you seemed to have been interviewed a few thousand times over the past - some of the past two or three days.
Mr. ALAN GREENSPAN (Author, "The Age of Turbulence"; Former chairman, U.S. Federal Reserve): No more than two.
SIEGEL: No more than two.
Mr. GREENSPAN: Two thousand, I think.
SIEGEL: I see. And you've provoked some critical comment. I'd like to hear you respond to it.
Mr. GREENSPAN: Mm-hmm.
SIEGEL: First, as for faulting the Bush administration's fiscal policies or practices, Dick Cheney says you're off the mark. You warned them of a possible recession right after the 2000 election, he says, and the tax cuts that they made are now paying off. President Bush says the federal deficit relative to the Gross Domestic Product is pretty low, and also cutting taxes helped deal with the recession and the deficit by stimulating growth. Are they right? And were the tax cuts the right move?
Mr. GREENSPAN: We're talking across purposes. My concern - especially about, as I point it out, the Republican Congress, which reigned for so long - was that we had the inexorable move of a very substantial product of the baby boom generation into retirement. This is going to create an extraordinary, unprecedented rise in benefit requirements. And any evaluation done by the trustees of the Medicare fund, for example, or most economists who had tried to what these data look like, have concluded that we are very sharply underfunded.
What I fault the Republican Congress in doing is not coming to grips with this issue before it becomes so difficult that it will be dangerous to the economy. The data that the president and the vice president point out are perfectly correct. It is the case that in the recent period the actual deficit, by any measure, is small. But what the problem basically is is we are moving into a wholly different period where - what I would term the cash accounting that is employed in judging the federal budget or deficit is the wrong procedure. It is what we are accruing for the future and the burdens on our children and grandchildren, which are creating huge distortions in a longer-term outlook. It is that which we are long overdue in addressing. And there's where my concern was.
SIEGEL: But through the 1990s and through what turned out to be a very successful collaboration with the Clinton administration, I can say as a member of the baby boom, you seem to be putting away for my Social Security check pretty well, I seem to be thinking about the future. And then came the recession after President Bush was elected, but also, a big tax break. With hindsight, was that tax break wrong? Or was it - does it only exacerbate the problem that you're talking about in terms of Social Security?
Mr. GREENSPAN: First, let me go back and rewrite history just ever so slightly.
Mr. GREENSPAN: The major issue that emerged just doing the campaign and right after the election was the emergence of an utterly unexpected and unprecedented surplus.
SIEGEL: You're talking about the election of 2000...
Mr. GREENSPAN: Yes.
SIEGEL: ...Right now, yes.
Mr. GREENSPAN: And as a consequence of that, I, who had been a deficit hawk, as they say, began to realize that there were very important problems associated with running very large surpluses after the debt has been paid down because there is no alternative when you have, say, $500 billion surpluses, what were just wrapping and projecting...
Mr. GREENSPAN: ...of accumulating them in private assets, which would mainly be American stocks and bonds. And having lived through Lyndon Johnson and Richard Nixon, I was very fearful of how they would use that extraordinarily large amount of claims on American business to introduce political issues. And therefore, I was recommending in my testimony finding a glide path, which would remove the surplus at the point the level of debt went to effective zero, either Bush's tax cut or the Democrats' tax cut at the time - both would have succeeded in doing that.
I was very supportive of a tax cut and I continue to be supportive in the context of what I called a trigger. And they didn't buy the trigger.
SIEGEL: But it seems that they didn't quite understand the trigger, if I understand what you're writing. You feel that you were not quite heard right in your testimony, and you've been criticized there by the likes of Paul Krugman of the New York Times that you had time after that to clarify what you meant.
Mr. GREENSPAN: I did. Paul wasn't reading the newspapers correctly.
SIEGEL: He was writing the newspaper.
Mr. GREENSPAN: He was writing newspapers. The surplus - to the surprise of all economists - disappeared far more quickly than they had expected. Consequently, what I suggested at that time, if the trigger was not in place, then so-called pagel(ph) would require that the tax cut be matched by either other tax increases or a cut in spending. The removal of part of the double taxation on dividends was a very important structural improvement. But I always made my support of tax cut contingent on they be paid for under the law, which expired in 2003.
SIEGEL: Do you feel strongly about the reduction of the inheritance tax as you do about reduction of double taxation of dividends?
Mr. GREENSPAN: No, I don't. The double taxation of dividends goes right to the issue of capital investment and productivity growth and standards of living. My major problem is I'm terribly concerned about the increasing inequality of income. And while I'm not in favor of taxing in a way or such I have - see that they're all benefits because I've always argued that you cannot have capitalist market economy without the support of a vast majority of the people. And the one issue, which I find very disturbing, is the rising inequality of income, which creates a backlash against what I think is - have been the most effective thing since the enlightenment...
SIEGEL: Market capitalism.
Mr. GREENSPAN: ...of market capitalism.
SIEGEL: So while you're not enthusiastic about it, the notion of redistributive taxes into some degree might be necessary to avoid the kind of income and wealth inequality that could be destabilizing or could challenge the system.
Mr. GREENSPAN: Well, I prefer to get at the causes first, although I could see that there are non-market advantages which actually are required to support the system as a whole.
SIEGEL: How influential was the experience of growing up through the Depression on you in terms of your approach toward the economy and toward life for that matter?
Mr. GREENSPAN: When you're young, you're not aware that there's any other alternatives. I mean, I was brought up in a lower middle class family. My parents were divorced and my mother raised me. She's an extraordinarily, inherently optimistic person. And while, of course, looking back many years later, I recognized the state of what the world was in, you don't remember in those terms because relative to what?
SIEGEL: But when you were a young man, before you tackled these issues academically, did you think of Franklin Roosevelt and the new deal as an intrusive, overarching bad move for the country? Were you...
Mr. GREENSPAN: When I was a young man...
SIEGEL: Yeah, when you're a young man, were you an enthusiast for the new deal? Did you care?
Mr. GREENSPAN: I didn't care. My views were much far more parochial. Kids are sport enthusiasts and what's going on in politics or the rest of the world is really something uninteresting out there.
SIEGEL: You're more interested in baseball and music in those days. Yes.
Mr. GREENSPAN: Absolutely.
SIEGEL: Do you still play? I mean, I know - people, I think, know that you're playing with a professional jazz band for quite a while. Yeah.
Mr. GREENSPAN: Yeah. I - a wind instrument player, when you stop for a while and you start again, it doesn't sound all that good, and so you don't play for a little longer. I play on occasion just to see whether my fingers can still move the way they did. It doesn't sound anywhere near the way it did. I tend to play the piano more now than most anything else.
SIEGEL: I think you're one of the, let's say, most senior high-ranking people whom I've ever read in their memoir, talking about the people who are smoking pot when they were young in the - your fellow band members back in 1940 whenever this was.
Mr. GREENSPAN: In '45.
SIEGEL: You're living out there in the jazz age world. You're not drawn to that at all.
Mr. GREENSPAN: I never did smoke cigarettes, but I will tell you this: to this day I can spot the smell of marijuana at 50 yards.
SIEGEL: Well, Alan Greenspan, thank you very much for talking with us today.
Mr. GREENSPAN: It's been my pleasure of being with you.
SIEGEL: We've been talking with former Federal Reserve chairman Alan Greenspan, the author of the memoir, "The Age of Turbulence."