Greenspan Memoir Democratic Gift, Republican Grenade (Update1)

By Matthew Benjamin

Sept. 17 (Bloomberg) -- Alan Greenspan, a conservative central banker, has tossed a political grenade into the 2008 elections and it exploded right under his Republican Party.

In his memoir, ``The Age of Turbulence: Adventures in a New World,'' the former Federal Reserve chairman skewered President George W. Bush and congressional Republicans for what he said was reckless spending and a politically driven economic agenda and said they deserved to lose control of Congress in 2006. By contrast, he praised former President Bill Clinton, a Democrat, and his economic record.

Greenspan's words are likely to echo throughout next year's campaigns for president and Congress.

``Democrats will taunt the Republicans with this and they will have to address it,'' said James Carville, who ran Clinton's 1992 presidential campaign. ``This is not coming from some shoe clerk.''

Scott Reed, a Republican consultant who managed Bob Dole's 1996 presidential campaign, said Greenspan's words should be ``a wake-up call'' for the party.

``Republicans running for office from the courthouse to the White House have to go back to the basics of economic conservatism or they will be sent back to the stone ages in electoral politics,'' Reed said.

In the book, scheduled for release today, Greenspan, 81, wrote that he was dismayed to find soon after Bush took office in January 2001 that politics, not thoughtful policy making, drove the new president's economic agenda.

`Open-Handed Spending'

Bush's tax cuts were ``unmatched by decreased spending, and, in the wake of September 11, still more open-handed spending,'' he wrote. ``Little value was placed on rigorous economic policy debate or the weighing of long-term consequences.''

The federal budget went from a $128 billion surplus in 2001, when Bush took office, to a record deficit of $413 billion in fiscal 2004. The Congressional Budget Office projects the deficit will narrow to $158 billion this year.

The administration took issue with Greenspan's characterizations. ``We're not going to apologize for increased spending to protect our national security,'' administration spokesman Tony Fratto said.

Republicans in Congress were no better, according to Greenspan, as they ``seemed readily inclined to loosen the federal purse strings any time it might help add a few more seats to the Republican majority,'' he wrote.

Right Priorities

Regarding Clinton, Greenspan lauded him for balancing the budget and working toward stable economic growth and said he had the right priorities from the start.

``He seemed to pick up on my sense of urgency about the deficit and asked a lot of smart questions that politicians usually don't ask,'' Greenspan wrote of an early meeting.

Clinton, a musician like Greenspan, cared about doing what was economically prudent, even if it wasn't popular, according to the book. The ``saxophone wasn't the only thing we had in common,'' he wrote.

Greenspan also said he worked well with Clinton's advisers, particularly Treasury Secretary Robert Rubin and his successor, Larry Summers.

The Bush White House was run differently, with the Treasury secretary serving merely as a spokesman for administration policy and with its emphasis on ``loyalty and staying on message,'' according to the former Fed chairman.

Iraq War and Oil

In another potential embarrassment for Bush and the Republicans, Greenspan asserted that the need for secure oil supplies from the Middle East was the true rationale for the U.S.-led invasion of Iraq in 2003.

``I'm saddened that it is politically inconvenient to acknowledge what everyone knows: The Iraq war is largely about oil,'' Greenspan wrote in a chapter titled ``The Long-Term Energy Squeeze.''

Secretary of Defense Robert Gates disputed that idea. ``What we were going after was an aggressive dictator who was a destabilizing force in the entire region,'' Gates, defense chief since December, said yesterday on ABC's ``This Week'' program.

Greenspan led the Fed for 18 years, from 1987 to January 2006, and is widely considered to have played a major role in engineering the 1991-2001 economic expansion, the longest in U.S. history. His stature assures that his views will cause a political reaction.

Republicans Respond

Republican presidential candidates sought to distance themselves from the targets of Greenspan's criticism.

``What Greenspan said ratifies what John McCain has been saying all along, we didn't control spending, which led not only to deficits, but to corruption,'' said Douglas Holtz-Eakin, chief economic adviser to the Arizona senator who is seeking the Republican presidential nomination.

Kevin Madden, spokesman for former Massachusetts Governor Mitt Romney, another contender, said his candidate ``has consistently and repeatedly pointed out that Republicans have to start acting like Republicans again on fiscal issues.''

Democrats, meanwhile, seized the opportunity.

``Those who want to stay the course on Bush's economic policy will have a much harder time in light of Alan Greenspan's book,'' said Roger Altman, founder of Evercore Partners Inc. and the chief economic adviser for the presidential campaign of New York Senator Hillary Clinton. ``There couldn't be a more authoritative or credible critic.''

Senator Clinton ``has already spoken out on the need to restore fiscal responsibility and how we compete in the global economy,'' her campaign strategist, Mark Penn, said when asked for comment on the book.

View on Hillary Clinton

Stepping further into the political campaign, Greenspan called Clinton, Bill Clinton's wife, ``very smart'' and said she ``wouldn't be a bad president'' in a Newsweek magazine interview released yesterday.

In an interview broadcast last night on CBS ``60 Minutes,'' Greenspan repeated his praise for the Clintons. Pressed on who he would support next year, he said his tendency would be to ``vote Republican.''

Leo Hindery, top economic adviser to former North Carolina Senator and presidential candidate John Edwards, said the candidate will likely make use of Greenspan's words in his campaign. ``John is a big believer in balanced budgets,'' Hindery said.

Greenspan's condemnation of Bush and his party adds to Republican woes that already include an unpopular war in Iraq, a softening economy, and the scandal surrounding Idaho Republican Senator Larry Craig, who was arrested in June during a police investigation of lewd conduct in a Minneapolis-St. Paul airport.

Said Charlie Cook, independent analyst and publisher of the Cook Political Report in Washington: ``Katrina, Iraq, deficits and now maybe the economy are damaging Republicans' historic strength in this area, and the Greenspan book adds to it.''

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net

Last Updated: September 17, 2007 09:38 EDT

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