Not too long ago, in commenting about President Bush's tax-cut proposals, we argued that he needed economic advisers who would caution him against implementing any policy that adds to the annual budget deficits and to the $3 trillion debt.
Not surprisingly, such advisers have been few and far between.
But that doesn't matter now, in light of Federal Reserve Chairman Alan Greenspan's appearance on Capitol Hill this week. When Greenspan speaks about the American economy and the federal government's economic policies, the world listens.
Thus, when he said, "I'm one of the few people who still are not convinced that stimulus is a desirable policy at this particular point," he sent an unequivocal message to the Bush administration: Go easy on the tax cuts.
The president has proposed a growth package that includes a dividend tax cut, an extension of the 2001 cuts and new savings and retirement accounts. Taken together, the initiative would cost $1.46 trillion over 10 years. That's $1.46 trillion taken out of the federal budget without any proposals for new revenue or a reduction in spending.
At the heart of Greenspan's analysis of Bush's economic stimulus is concern about the budget deficit.
Long-term interest rates
"Contrary to what some have said, [an increase in the deficit] does affect long-term interest rates, it does have a negative impact on the economy," he said.
Similar warnings have fallen on deaf ears in the White House. The president and his advisers do not see deficits as an impediment to economic growth and believe that they will disappear once the economy has been reinvigorated with the tax cuts.
But the problem is that the size of the deficits -- the Congressional Budget Office now estimates $200 billion worth of red ink this year and $145 billion next year -- are such that even the most rosy growth projections won't be enough to erase them.
Even when agreeing with the president, the Federal Reserve chairman is cautious. He said that while he supports Bush's proposals to eliminate the personal tax on stock dividends and to permanently extend the 2001 cuts now scheduled to "sunset" at the end of the decade, they should be "revenue neutral."
It is clear that the president's stimulus package has been oversold and will not have the short-term impact needed to reinvigorate the economy.
The fact that the Republican president isn't getting overwhelming backing from the Republican controlled Congress is an indication of the level of uncertainty surrounding the administration's economic assumptions.
As we've said repeatedly since Bush took office three years ago, new tax cuts are not in the best interest of the nation -- especially now, when Bush is getting ready to launch an invasion of Iraq.