CNN's Ali Velshi continues to use his weekend program, Your Money, as one long free infomercial for the Peterson Group. This Saturday his weekly round of fearmongering over the "fiscal cliff" was with none other than Ayn Rand fan Alan Greenspan, who is apparently now the latest spokesman for the Peterson Group.
And as Stephanie Kelton at Wall Street Pit noted, he seemed to be having a bit of trouble remaining consistent with remarks he's made in the past about our debt and Social Security. I don't think it's a leap at all to assume that he's reading from the talking points of the group who wants to privatize Social Security in order to enrich Wall Street, while standing in front of a wall full of their logos.
Here's more on that from Yves Smith at Naked Capitalism -- Greenspan’s Switch to Debt Scaremongering:
Stephanie Kelton provides two video clips to underscore the point that until quite recently, Greenspan made the point that MMT types do: that the US as a currency issuer, can always pay its debts (it might incur too much inflation, but with the economy having as much slack as it does, that’s far from a pressing worry).
What I found striking was the clip of Paul Ryan pressing the man formerly known as Maestro when he was still the Fed chairman to agree that private retirement accounts would be more stable than a government sponsored program. That’s such a Big Lie I’m amazed anyone can peddle it with a straight face. [...]
After 20 years of demonizing government debt and pushing for government in miniature, billionaire Pete Peterson and his allies have managed to get the public fixated on their message rather than their motives, and the Ryan con job serves as a useful reminder.
One long-standing effort has been to “privatize” Social Security, so that Wall Street could charge fees for managing the money. Note that some countries, like Australia, mandate that a big chunk of wage payments be invested in superannuation accounts (I’m not current on the law, but when I lived in Australia, it was 9% of pay, and I believe it has risen since then. The ATO’s pages on this are too layered to get a quick answer). And even if they don’t get a mandated contributions regime, merely reducing Social Security payments will force people to save and invest more, and will similarly enrich the brokerage and investment management industries.
But the other rationale is more basic: the rich want taxes lower, period. They want to roll the clock back to the 1890s. [...] This is our future unless ordinary people wake up and oppose it. Not surprisingly, Greenspan, who was never on the side of little people, has officially cast his lot in with it.
Full transcript below the fold.
VELSHI: Alan Greenspan had a front row seat to some of the biggest economic events of the last 25 years. When he was appointed chairman of the U.S. Federal Reserve, it was 1987. Ronald Reagan was in the White House.
Over 18 years Greenspan led the central bank of the world's largest economy through good times and bad. Now six years after he's left the job, his successor Ben Bernanke is warning of the danger of plunging over the fiscal cliff.
I've been warning you about the catastrophic effects that could have on America's already fragile recovery. But some say that it's fear mongering.
I spoke with Alan Greenspan who was in Washington at a Peterson Foundation event to discuss the fiscal cliff and I asked him point blank, do you believe the U.S. can go in a recession as a result of the fiscal cliff?
GREENSPAN: Most certainly. But remember, all the forecasts come off econometric models, which didn't catch the 2008 crisis. And so you have to be very careful about using them to evaluate this type of problem.
VELSHI: The last time Washington faced the expiration of the Bush era tax cuts back in 2010, you said in interviews they should follow the law and let them expire for everyone. Now putting aside the other parts of the fiscal cliff, do you still feel that all Americans should see their income tax rates rise?
GREENSPAN: I say that this crisis is going to be extraordinarily difficult to resolve. In other words, the crisis I'm referring to is not the fiscal cliff crisis but the broad crisis with respect to debt. We have had a exorable rise in the rate of spending on so-called social benefits. And as I mentioned before, this is both Republican and Democrat and neither one of them get a hold on this.
But what the data very clearly shows is that as social benefits rise, the savings, the domestic savings of the American economy declines. And that is basically the root source of funding for capital investment and capital investment is where productivity comes from and productivity is where economic growth comes from.
So unless and until we recognize that we got to slow the pace and in fact reduce the level of benefits to allow savings to come through, that will create the type of economic growth, which will enable us to fund these social benefits. We're running into a stonewall here in which the more social benefits we have which we don't contain, the lower the rate of savings, lower the rate of growth, and a lesser quantity of real resources to fund the benefits.
This is obviously an unsustainable situation. And the sooner we come to grips with it the better. And I raised the issue of allowing the Bush tax cuts to rescind on schedule was not that I want taxes to go up. I think it's a terrible idea. Relative to what? I mean if we don't close this deficit fairly quickly, we are in real trouble.
Remember, it's always easier to cut taxes politically than it is to cut spending. So if you have to allow a significant rise in taxes to essentially cut a deal on a major benefit cut, that's a good deal for me because it's always easier in the future to cut -- politically to cut taxes than it is to cut spending.
VELSHI: So let me ask you this. If we can get to that 3 percent growth to 4 percent and beyond, then you've got -- you're seeing it becomes a virtuous cycle. Can that happen? Is there -- would the immediate spending cuts that we are looking at now help get us there?
GREENSPAN: Look, IMF studies show definitively that if you cut spending in a situation like this, it does lower the GDP but nowhere near the amount and increase in taxes lowers the rate of increase in GDP. So that I think if we have to have a moderate recession to solve this huge fiscal problem that's if front of us, I think there is a very small price to pay. Because we're not going to get out of this thing without paying it.
There is a presumption here that we have a whole schedule of economic policies, which can just basically solve the problems compared to a normal situation. It is not. This is an extraordinarily unprecedented situation and unless and until we reign in the spending growth, this economy can't function.
VELSHI: The economy can't function. So he's saying a little recession is better than the idea of raising taxes on everyone. A fascinating conversation with the former Fed chairman. You can hear more of it on CNNmoney.com.