The Fed & Alan Greenspan.

ITEM: Federal Reserve Chairman Alan Greenspan, say Charles Zwick and Peter Lewis in the Miami Herald for February 28, is "conflicted." The writers, the director and assistant director of the Bureau of the Budget in the Johnson administration, continue: "As an enemy of big government, the chairman supports privatization of Social Security. Yet as an enemy of federal budget deficits, he fears the consequences of private accounts. You could say that his position on privatization is philosophical and involves his heart while his position on deficits is pragmatic and involves his mind. His position goes back a long way. Greenspan has been influenced by Ayn Rand and by Milton Friedman, the Nobel Laureate...." "At risk" they continue, "is not only [Greenspan's] reputation for fiscal discipline, but also the hard-earned independence of the Federal Reserve System."

ITEM: The Atlanta Journal-Constitution for February 23 commented: "For a champion of fiscal discipline, Federal Reserve Chairman Alan Greenspan is surprisingly tolerant of what passes for restraint nowadays. Last week, Greenspan endorsed President Bush's plan to make the administration's first-term tax cuts permanent as long as they are accompanied by offsetting spending cuts or other taxes. The problem is, they won't be and Greenspan knows it." Continued the editors: "If he's serious about the need for fiscal discipline, he should retract his support for permanent tax cuts."

CORRECTION: Though Alan Greenspan is promoting privatizing Social Security (and maintaining tax cuts), which would, if implemented correctly, spur much-welcomed private investment in the U.S. and long-term financial health for our country, his reputation as a fiscal hardliner is not warranted. Despite Greenspan's misleading portrayal by the major media, he is not "an enemy of big government," "an enemy of federal deficits," or a "champion of fiscal discipline." If he were, he would have devoted his energies to trying to dismantle the Federal Reserve instead of leading it for many years.

The supposedly "independent" Fed, which was created by an act of Congress, provides an important service to big government: it creates flat money--that is, money backed by nothing--and then loans this money to the government to finance the government's huge deficits. This deficit spending is the handmaiden of big government, since it is much easier for politicians to increase government spending if the voters don't see the true costs fully reflected in their tax bills.

Still, liberals love to cite Alan Greenspan as a "fiscal conservative" when promoting some distinctly anti-conservative scheme. There is no better disguise for increasing the power of the state than by providing the cover of a reputed anti-statist. The Fed itself plays a similar role, and is often ballyhooed as an independent inflation opponent.

Controlling a nation's flat currency goes a long way toward controlling that country's very economy. The Fed does just that, by expanding and contracting the supply of money and credit. From its beginnings, the Fed's role has been very different from its surface appearance. As economist Murray Rothbard summarized in The Case Against the Fed: "Central Banking, in short, was designed to 'do for' the banks what the ICC [Interstate Commerce Commission] had 'done for' the railroads, the Meat Inspection Act had done for the big meatpackers, etc. In the case of Central Banking, the line that had to be pushed was a variant of the 'anti-Big Business' shell game being perpetrated throughout the Progressive Era. In banking, the line was that a Central Bank was necessary to curb the inflationary excesses of unregulated banks on the free market."

Alan Greenspan's frugal reputation has been similarly valuable for the establishment. As Congressman Ron Paul (R-Texas) recalled not long ago, Greenspan used to decry how deficit spending and abandoning the gold standard in favor of flat currency had made it possible for "the welfare statists to use the banking system as a means to an unlimited expansion of credit...." Yet, said Rep. Paul, "Mr. Greenspan has become one of those central planners he once denounced...."

When the chairman recently testified before the House Financial Services Committee, Paul questioned him about this turnaround. Greenspan, said the congressman, "claimed he was wrong about his predictions of calamity for the fiat U.S. dollar, that the Federal Reserve does a good job of essentially mimicking a gold standard, and that inflation is well under control. He even made the preposterous assertion that the Fed does not facilitate government expansion and deficit spending. In other words, he utterly repudiated the arguments he made 40 years ago."