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Quotes from Alan Greenspan's talk

I've come to the conclusion that the best way to cover these events is jot down interesting quotes and leave my analytical take for later. Listen first, analyze second. So this post will just collate some of Greenspan's more interesting comments. This is rush transcription, so every word may not be exact.

"We had a major economic acceleration coming out of the economic crisis, and it was very impressive. until May. And then it's like we've hit an invisible wall."

"The question is not all that difficult once you recognize that there is far greater momentum in the budget deficit and in spending than in the official figures. Once you have spent $1.2 trillion it's very hard to say no to a constituency group that wants $4 billion."

"You have to ask yourself what job spending will do. It does increase GDP. Always has, always will. The question is, how long can you do it? The original theory was that you prime the pump for the private sector. There is no evidence that has happened. The housing credit, for instance, just moved housing purchases forward, it didn't expand the market. Cash for Clunkers was a very similar situation."

"After stimulus, the deficit will come down, But then it will go up again, mainly due to the major long-term problem, which is Medicare spending, and we don't know what it will be. And we need to remember that if our estimations are wrong, it's far more of a problem if we've underestimated the deficit. If we've overestimated it, it's always easy to spend more."

"It's very hard to see unemployment going below 9 percent for the rest of this year."

"I wouldn't favor increasing immigration solely for the purpose of propping up the housing market. But we have two immigration problems, each on one end of the income scale. The notion that immigration negatively affects living standards in the United States is wrong. Undocumented immigrants add very significantly to the American economy. And on the other end of the income distribution, the restrictive quotas do us enormous damage. We need to stay on the cutting edge. And our schools are failing. We don't always have the technical skills we need. If we don't get them from somewhere else, we'll finds ourselves falling behind others. The way to get them is to import them from abroad."

"If we did what Greece is doing, we could come to grips with the [deficit] problem."

"What I would've liked to see in financial reform was a diagnosis of the problem and then an effort to address it. What the data show is that we had inadequate capital for decades. The way we know that is the fact that when the crisis came upon us in 2008, we had this huge bill to taxpayers. That bill is the degree of subsidization we had for years when there was inadequate capital. Before the crisis, in the 50s and 60s and 70s, the system had 10 percent capital, which seemed reasonable. But then we learned that there were tail risks that we had never actually observed. The tail is not fat, but obese. We need a lot more capital going forward. If that had been done in the early years, the bubble would have risen and collapsed, but the losses would've been absorbed by the common shareholders of individual investment institutions."

"This [financial regulation] bill has a few good things in it, and one of them is the fact that it does address the capital problem, but it does so by placing great discretion on the Federal Reserve and other regulators. But I am very uncomfortable with the provision that empowers the Federal Reserve to seek out crises and try to take actions in advance of that. As it stands now, I would be very uncomfortable voting for it."

"I cannot conceive of a politically feasible solution to this problem which will overdo cutting the deficit, where overdoing means harming the economy. It might be technically possible, but it is not realistic."

"Coming to the issue of taxes, this gets to the more fundamental issue of the effects of taxation and spending cuts. There are several studies out there evaluating past efforts at fiscal restraint that show the heavy weight of successful contraction has been on the spending side. There's some question of the data, in that you only have 25 observations and they're all unique and so homogenizing them is difficult, but the general conclusion is that you cannot successfully attack fiscal problems through taxes. A bit value-added tax will cure the budget deficit temporarily, but the spending forces that generated it are still im play. But if you cut spending, it's a different base. And there are unquestionable studies showing that higher the level of taxation in the system, the less viable and innovative is the economy."

Back in 1982, when we had our Social Security commission, we decided Medicare was too difficult to handle, and we had 25 years to deal with it. Now it's 25 years later and nothing has been done."

"I don't see how you [sharply cut deficits] without evidence of fiscal strain. Fiscal strain shows up either as crowding out, inflation, or higher interest rates. There is some crowding out that we can measure, but not much. There's no inflation. And interest rates are, if anything, falling."

I didn't get the exact quote on this, but Greenspan ended his talk by saying that health-care costs were a long-term disaster, and eventually, we were going to have to accept some form of rationing. We obviously ration right now, but not in programs like Medicare, which are on the federal books.

By Ezra Klein  |  July 9, 2010; 2:30 PM ET
 
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Next: Hayek on Social Insurance

Comments

Yea, Alan, I'm sure undocumented immigrants add a lot to the bottom line for your friends - operating costs are easy to keep in line when you're paying sub-minimum wage off the books. And we sure would'nt want Andrea to have to clean the bathrooms herself, would we?

On the other had, for those of us who clean our own houses, mow our own lawns, and raise our own children, the overcrowded schools, day laborer catcalls, and having to push 1 for English are pretty much just a pain in the butt.

Posted by: guesswhosue | July 9, 2010 3:12 PM | Report abuse

"We had a major economic acceleration coming out of the economic crisis, and it was very impressive. until May. And then it's like we've hit an invisible wall."

We had "one" good quarter, with 5.6% growth, and that quater (along with the other two growth quarters) was driven mostly by inventories. Final sales have limped along at 1% growth for a year now.

"The question is not all that difficult once you recognize that there is far greater momentum in the budget deficit and in spending than in the official figures. Once you have spent $1.2 trillion it's very hard to say no to a constituency group that wants $4 billion."

Excellent point.

"You have to ask yourself what job spending will do. It does increase GDP. Always has, always will. The question is, how long can you do it? The original theory was that you prime the pump for the private sector. There is no evidence that has happened. The housing credit, for instance, just moved housing purchases forward, it didn't expand the market. Cash for Clunkers was a very similar situation."

Does it always increase GDP? How can we be sure the alternative use of money wouldn't have increased GDP by more? Sure, you can point to areas where stimulus money increased economic activity, but we are unable to identify where borrowing for the stimulus decreased economic activity. I don't doubt that jobs spending CAN increase GDP, but everytime?

In any case, as he points out, increasing GDP doesn't mean a whole lot if the private sector doesn't start expanding. GDP falls right back and you're stuck with nothing but debt.

"This [financial regulation] bill has a few good things in it, and one of them is the fact that it does address the capital problem, but it does so by placing great discretion on the Federal Reserve and other regulators. But I am very uncomfortable with the provision that empowers the Federal Reserve to seek out crises and try to take actions in advance of that. As it stands now, I would be very uncomfortable voting for it."

The Financial Reform bill is a joke. The best part is to trust the regulators who fell down the last time (and time before, etc)? People can still buy houses for next to nothing down, but, well, just read Arnold Kling's comments here:

http://econlog.econlib.org/archives/2010/07/policy_focus.html

"It's very hard to see unemployment going below 9 percent for the rest of this year."

Yup. If people hadn't left the labor force in droves over the past two months, unemployment would be in the 10 1/4 - 10 1/2 context, not 9 1/2.

Posted by: justin84 | July 9, 2010 3:19 PM | Report abuse

Just how wrong and destructive to you have to be before you cease being treated as an oracle?
Or is it a paycheck like everything else?

Posted by: ostrogoth | July 9, 2010 3:52 PM | Report abuse

ahh, to be a member of the "Serious Persons" club and always know the best medicine. Must be nice.

I'll give Greenspan some credit for admitting "There's no inflation. And interest rates are, if anything, falling." But that's where his intellectual honesty ends. Why the need for draconian cuts in the face of what he admits are record low borrowing costs? Why did we do nothing on healthcare for 25 years? The age of deregulation of course. Yet somehow the market exacerbated the problems of cost and coverage, rather than solving them.

The ideas that will get us out of this rut are not coming from him and his ilk.

Posted by: AttentionDeficit | July 9, 2010 5:37 PM | Report abuse

Greenspan was the architect of the housing bubble and ignored its existence? Why does this doddering old fool have any credibility left?

Greenspan was hailed as a great Fed Chair when he had Clinton regulators and fiscal policy to back him up. Greenspan was taken to the cleaners when during the Bush period of chainsaw regulation and incoherent fiscal policy.

Reflecting on being 'had' Greenspan said, ”Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief”.

Why should we listen to Greenspan?

Posted by: bakho | July 9, 2010 6:30 PM | Report abuse

Our national inability to solve economic problems creatively is epitomized by the fact that Alan Greenspan is still invited to talk anywhere. Did you also catch Ronald McDonald's lecture on the obesity epidemic?

Posted by: andrewbaron78 | July 9, 2010 8:13 PM | Report abuse

You guys should stop complaining cuz one the health care we have now isnt as good as it was supposed to be. also the law has just been signed give it a try u guys are too hard on democrats they went to college and we voted for most of these people.so if u want to say u have the right to choose tell that to ur congress men or state official. as for obama people are just tryin to make it look like america made a mistake he has done things to help us and we had a full 8 years of a terrible president and i will be so as happy as ever when a obama fixes bush's mistakes. You can find full medical coverage at the lowest price from http://bit.ly/chE6zp obama has to put up with the wo0rld judging his every move and trying to fix the mess we are in we are lucky anyone wants to be our president. STOP COMPLAINING AND GIVE HIM A BREAK. i wanna see one of yall do what he sas done. some people are just so ignorant.

Posted by: henryjose09 | July 10, 2010 6:11 AM | Report abuse

It all comes down to the fact that rich people don't think they should have to pay anything to live in a civilized society. Taxes are for their serfs. Alan Greenspan is an intellectual epiphenomenon, offering endless, meaning-free apologies for greed.

Posted by: janinsanfran | July 10, 2010 11:09 AM | Report abuse

On pump priming... from http://www.ehow.com/how_2064176_prime-sump-pump.html

The instructions require that the pump must be FULLY primed or it will still be SUCKING AIR as the economy (except for the financial sector that is living off of TARP rescue policies) is experiencing right now. The labor market is in the dumper and there is still plenty of excess capacity.

Putting in only a third or a quarter of the needed amount of priming material means that the system is still SUCKING AIR.

The stimulus was underfunded even before the Republicans in the Senate made it less effective.

Instructions:
Step 1
Understand that to prime a sump pump simply means to get it ready to pump. It must be primed for operation. Basically, the pump needs to have water poured into it. If your pump is not working properly, look for air leaks in the lines first. The slightest air leak can cause the pump to lose prime.
Step 2
Check the suction piping and foot valve at the end of the suction line if your well is not pumping properly. The foot valve keeps the suction line full of water, thus keeping the pump primed.
Step 3
Cover any air leaks you find in your water lines or suction piping. Put a piece of duct tape securely over the spot that's leaking.
Step 4
Make sure you prime from the topmost level of the pump with the valve between the pump and the tank closed. Very few pumps prime the first time. It usually takes several tries.
Step 5
Use either a submersible or non-submersible sump pump for pumping water out of basements, pools, and boats or to drain water off of flat roofs. Submersible pumps go under water and have a screen to keep trash out of the pump. The submersible pump must be in water before it will prime.
Step 6
Get a non-submersible sump pump ready to prime by hooking a water hose to the inlet side. Make sure the hose is full of water before you turn the pump on. That way the pump is not sucking air.

Posted by: grooft | July 10, 2010 12:41 PM | Report abuse

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