Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy
Book by Ravi Batra
Review by Thom Hartmann, originally published at buzzflash.com on July 7, 2005.
What do you do when you want to screw only the working people of your nation with the largest tax increase in history and hand those trillions of dollars to your wealthy campaign contributors, yet not have anybody realize you've done it? If you're Ronald Reagan, you call in Alan Greenspan.
Through the "golden years of the American middle class" - the 1940s through 1982 - the top income tax rate for the hyper-rich had been between 90 and 70 percent. Ronald Reagan wanted to cut that rate dramatically, to help out his political patrons. He did this with a massive tax cut in the summer of 1981.
The only problem was that when Reagan took his meat axe to our tax code, he produced mind-boggling budget deficits. Voodoo economics didn't work out as planned, and even after borrowing so much money that this year we'll pay over $100 billion just in interest on the money Reagan borrowed to make the economy look good in the 1980s, Reagan couldn't come up with the revenues he needed to run the government.
Coincidentally, the actuaries at the Social Security Administration were beginning to get worried about the Baby Boomer generation, who would begin retiring in big numbers in fifty years or so. They were a "rabbit going through the python" bulge that would require a few trillion more dollars than Social Security could easily collect during the same 20 year or so period of their retirement. We needed, the actuaries said, to tax more heavily those very persons who would eventually retire, so instead of using current workers' money to pay for the Boomer's Social Security payments in 2020, the Boomers themselves would have pre-paid for their own retirement.
Reagan got Daniel Patrick Moynihan and Alan Greenspan together to form a commission on Social Security reform, along with a few other politicians and economists, and they recommend a near-doubling of the Social Security tax on the then-working Boomers. That tax created - for the first time in history - a giant savings account that Social Security could use to pay for the Boomers' retirement.
This was a huge change. Prior to this, Social Security had always paid for today's retirees with income from today's workers (it still is today). The Boomers were the first generation that would pay Social Security taxes both to fund current retirees and save up enough money to pay for their own retirement. And, after the Boomers were all retired and the savings account - called the "Social Security Trust Fund" - was all spent, the rabbit would have finished its journey through the python and Social Security could go back to a "pay as you go" taxing system.
Thus, within the period of a few short years, Reagan dramatically dropped the income tax on America's most wealthy by more than half, and roughly doubled the Social Security tax on people earning $30,000 or less. It was, simultaneously, the largest income tax cut in America's history (almost entirely for the very wealthy), and the most massive tax increase in the history of the nation (which entirely hit working-class people).
But Reagan still had a problem. His tax cuts for the wealthy - even when moderated by subsequent tax increases - weren't generating enough money to invest properly in America's infrastructure, schools, police and fire departments, and military. The country was facing bankruptcy.
No problem, suggested Greenspan. Just borrow the Boomer's savings account - the money in the Social Security Trust Fund - and, because you're borrowing "government money" to fund "government expenditures," you don't have to list it as part of the deficit. Much of the deficit will magically seem to disappear, and nobody will know what you did for another 50 years when the Boomers begin to retire 2015.
Reagan jumped at the opportunity. As did George H. W. Bush. As did Bill Clinton (although Al Gore argued strongly that Social Security funds should not be raided, but, instead, put in a "lock box"). And so did George W. Bush.
The result is that all that money - trillions of dollars - that has been taxed out of working Boomers (the ceiling has risen from the tax being on your first $30,000 of income to the first $90,000 today) has been borrowed and spent. What are left behind are a special form of IOUs - an unique form of Treasury debt instruments similar (but not identical) to those the government issues to borrow money from China today to fund George W. Bush's most recent tax cuts for billionaires (George Junior is still also "borrowing" from the Social Security Trust Fund).
Former Bush Junior Treasury Secretary Paul O'Neill recounts how Dick Cheney famously said, "Reagan proved deficits don't matter." Cheney was either ignorant or being disingenuous - it would be more accurate to say, "Reagan proved that deficits don't matter if you rip off the Social Security Trust Fund to pay for them, and don't report that borrowing from the Boomers as part of the deficit."
As the Associated Press reported on April 6, 2005:
"PARKERSBURG, West Virginia. (AP) -- President Bush on Tuesday used a four-drawer filing cabinet stuffed with paper representing government IOUs the president said symbolized the Social Security trust fund's bleak outlook for meeting Americans' future retirement needs. ...
"'A lot of people in America think there is a trust -- that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you,' Bush said in a speech at the University of West Virginia at Parkersburg.
"'But that's not the way it works,' Bush said. 'There is no trust "fund" -- just IOUs that I saw firsthand,' Bush said...
"[Susan] Chapman [of the Office of Public Debt] opened the second drawer and pulled out a white notebook filled with pseudo Treasury securities -- pieces of paper that offer physical evidence of $1.7 trillion in treasury bonds that make up the trust fund."
Later, Senator Rick Santorum made an odd admission for a Republican: ""You can't pay benefits with IOUs," he said on the Senate floor. "You have to pay it with cash."
And where will that cash - now nearly two trillion dollars - come from over the next decades as Boomers begin to retire?
Technically (and legally) it's simple - the Social Security Trust Fund will give back its IOUs to the Treasury Department and in exchange for them get cash to pay the Boomers' retirement checks. Practically, though, it'll be a crisis of biblical proportions. In order for the Treasury to come up with that kind of cash will require either massive tax increases or increased massive borrowing - at a time when we're already borrowing so heavily that China is propping up our economy with weekly loans.
Thus, Bush talks about a "crisis" in Social Security with some accuracy. But he doesn't dare tell us what the real "crisis" is, or how Reagan and Greenspan set it up, because when it becomes widely known that the real crisis is that Reagan set the course to steal Boomers' Social Security savings, it will destroy the reputation of both supply-side economics and the Republican Party for generations to come.
That Republicans and "conservative" Democrats have been able to perpetrate this fraud on America for the past 25 years tracks back to the initial and ongoing efforts of one man, Alan Greenspan, says Ravi Batra in his new book "Greenspan's Fraud: How Two Decades of His Polices Have Undermined the Global Economy."
And the Social Security fraud just outlined is only the beginning. Batra shows - in extraordinary (and easily understood) detail - how Greenspan has steadily worked for over two decades to sell out America's sovereignty and economic interests to those of the multinational corporations he so loves, and to sell out the working people of America (and their Social Security Trust Fund) to the super-rich who Greenspan has always represented.
Greenspan manipulated the stock market so his buddies could get rich, then warned them just in time to get out before it blew up. He's kept together tax cuts and pay increases for the CEO class by pumping cheap money into the economy so the Middle Class will go ever deeper into debt, setting up a housing bubble that could crash in a way that would make 1929 look like a mild bump in the economic road. And he's helped engineer and support international "free" trade policies that have disemboweled America's manufacturing and information technology sectors, with the happy result for Republicans that the once-politically-active and heavily unionized middle class is being replaced by a politically impotent mass of the working poor, too busy to worry about politics or challenge corporate news.
Most people, coming across this massive indictment of Greenspan, would probably react with skepticism. Why wasn't any of this in the paper? Why haven't I heard Democrats and liberals attacking Greenspan from the floors of Congress and in the progressive media?
As Batra points out, the truest testament to the power Alan Greenspan holds is that he's been able to do so much of this behind the scenes. He gently encourages and nudges, argues and lectures, leaks and pontificates. He suggests, rather than orders. And, of course, he holds the levers of the nation's money supply in his hands - making him a more fearsome threat to a sitting president or political party than J. Edgar Hoover ever was.
And, Batra documents, Greenspan has not been at all reluctant to use his considerable power to the benefit of those in office.
One example: During the Reagan and Bush presidencies, he was in favor of tax cuts. During Clinton's he was against them. During Bush Junior's he was again in favor of them.
Ravi Batra's book "Greenspan's Fraud" is not only required reading for all Americans because it so clearly lays out the crimes this man - and the Republican Party - have committed against the United States of America, but also because it's such a brilliant primer in macroeconomics overall. If you never were able to figure out, for example, what interest rates had to do with unemployment, or how the rich get richer in America while the poor get poorer, or why when the minimum wage is increased the economy gets better, Batra explains it all with elegance, wit, and comfortable clarity.
"Greenspan's Fraud" is one of the most important books you can read this year. Get two copies, because you're sure to have at least one friend you'll want to read this book, but your own copy will be so marked up and beloved that you'll not want to let go of it.