Greenspan Stresses Need for Budget Discipline, Caution on War Involvement

At least in his dealings before Congress, I tend to agree with Alan Greenspan. His observations on the political economy are always dead-on, particularly in today's semi-annual report before the Senate Banking Committee.

It is no surprise that he denounced the budgetary irresponsibility of the day, but he sure took the wind out of the Democrats' sails when he refused to admit that government spending is government spending is government spending. Keynes had a difficult time understanding this, but here it goes: On one side of the scale you have $1 billion in government services (USPS/Amtrak bailouts, ethanol subsidies, e.g.); On the other side of the balance there is $1 billion in permanent tax cuts.

Daschle and Pelosi would like you to believe that the scale is balanced -- but it's not. Government services do not stoke the fire of productivity and economic growth anymore than my purchase of a book for Christina will benefit the 9th District of Your Mom. It's that sort of nonsense that should have died in the bread lines of FDR's War on America (er-- the New Deal and its LBJ derivative, War on Poverty).

But let's return to the present. A permanent tax cut will do us all a service by-way of taking some of the irresponsibly-spent money out of the hands of those near-term-perspective political animals. Tax-cuts that are encouraged by moderates (read: the pussy-ass GOP) are termed (usually ten years) and offer little solace for a burned-out market that can see through the political rhetoric (read: bullshit) of the day and recognize that the rules of the game can change from session to session, or even day-to-day with such narrow political majorities.

Yes, at the end of the day, the costs of a tax-cut fall on the same bottom-line as the rest of expenditures. But don't make me go down that well-traveled path of incentives, moral hazard, the Iron Triangle, and damn-fool bureaucrats. It should be second-nature by now.

Do note that Greenspan also discussed the need for the federal government to switch to a chained CPI from the antiquated consumer price index in how it indexes federal benefits (social security, for one) for inflation. As he said, the chained CPI "better measures changes in the cost of living." It does this by behaving in a more dynamic way than the traditional CPI, which relies on a fixed market-basket of goods and services. The chained CPI changes the weights of included goods to reflect relative price changes, which obviously impact consumption levels.

In plain-speak, the chained CPI is a little less careless than the CPI and when we're talking about billions of miscalculated dollars (because the system is too old to note subtle changes), there's a huge impact. From the WSJ article:

Had the [chained CPI] been used over the last decade, the federal deficit in 2002 would have been $40 billion smaller.

Um, can we get on that?