Greenspan, Rubin Give History a Democratic Spin

Sept. 28 (Bloomberg) — If the Republicans were a stock, they would be unshortable.

The war in Iraq, earmarks, and "wide stance" scandals have brought the Grand Old Party low. And GOP critics aren't content with seeing the Republicans in Congress look like the losers this decade. They want to take the 1990s away from those righties, too.

Call it the Ru-Span version of history, after two recent autobiographies. The first is the 2003 memoir of former Treasury Secretary Robert Rubin, "In an Uncertain World." The second is this month's "The Age of Turbulence," by former Federal Reserve Chairman Alan Greenspan. The chattering crowd, the Democratic spinmeisters, and almost everyone else in the Washington Establishment are taking the backdrop Rubin and Greenspan provide to color in a whole new image of the decade.

In this picture, Republicans are distasteful, nattering outsiders. Sole credit for the prosperous 1990s goes to the New Democrats who held the White House.

There is some accuracy to the Ru-Span version. President Bill Clinton really did fight hard for narrowing the deficit through the tax increases of the 1993 budget, though there is much disagreement about the merits of the tax emphasis. Clinton really did say that the era of big government was over. And Rubin did negotiate a deal that brought the capital-gains tax rate down to 20 percent.

But Clinton, Rubin, and Greenspan didn't do all this alone. They did it under persistent pressure from those irrelevant loudmouths, the Republicans.

Republicans Led

Consider, first of all, that budget balancing. Republicans were in the lead on this before Clinton even began plotting his run for president. Gramm-Rudman-Hollings, the original budget straitjacket from the 1980s, was bipartisan, but two Republicans, Senators Phil Gramm of Texas and Warren Rudman of New Hampshire, were the principal tailors of the legislation.

It was George H.W. Bush who put his signature on the Budget Enforcement Act of 1990, which Greenspan praises as a "monument to congressional self-restraint."

In the Clinton years, Republicans did more than their part to balance the budget and they put it in writing in the Contract With America. The government shutdown of 1995 wasn't popular. But Republicans forced it anyway, demonstrating their sincerity about budget cuts.

Republicans likewise broke ground on welfare. The speaker of the House, Newt Gingrich, took a lot of flak for the GOP's Personal Responsibility Act, which aimed to end welfare. Donna Shalala, secretary of the Health and Human Services Department at the time, castigated Gingrich's proposals as a "cruel hoax" on the poor. It was only later that Clinton decided to compromise with Congress to bulldoze this Great Society landmark.

Praise Is Due

What about taxes? Many, including yours truly, have praised Rubin for the 20 percent capital-gains tax rate that he negotiated into law. But again, Republican pressure was crucial.

Rubin and the White House were desperate for tax breaks for lower earners. Clinton's own sex scandal, not "wide stance" but Monica-gate, was weakening his bargaining power. But the White House saw that Republicans were desperate for something else: a lower capital-gains tax rate.

Rubin traded the capital-gains rate cut for a refundable child credit. House Ways and Means Committee Chairman Bill Archer pushed Rubin harder and managed to win a commitment to an 18 percent rate for long-term holdings of more than five years. The economy, which many people assumed was heading into recession, found its second wind.

Extra Revenue

The extra tax revenue that had failed to materialize in the first President Bush's administration now flooded federal coffers. As J.D. Foster, who until recently crunched tax numbers at the Treasury Department, shows in a forthcoming paper for the Heritage Foundation, a good share of that revenue was due to the 1997 tax cut.

The revenue in turn made finding our way to surplus easier. We may well speak of a Rubin Prosperity. But we can speak of an Archer Prosperity as well.

The Ru-Span version of history contains a message about this decade — that the current president, unlike his predecessors, is overtly political. If you set aside his omissions on Republicans and growth, Greenspan's book seems wonderfully balanced. Still, there is one page where he castigates Bush as unstatesman-like for sticking to campaign promises, unlike Clinton or Gerald Ford, both of whom Greenspan preferred.

"I did not foresee how different the Bush White House would be," he writes. "Their stance was 'This is what we promised; this is what we'll deliver."'

Market Men

Yet the Bush tax cuts, like the Clinton cuts before them, contributed to the stability that Greenspan and Rubin, men of markets, prize so highly.

So sure, the Ru-Span history is compelling. But it is also incomplete. Republicans may be in trouble now, but they did a lot of good in their time. Neither they nor their friends are caricatures. (In one of the more revealing scenes in the book, Gingrich coaxes Greenspan into phoning radio-show host Rush Limbaugh about the Mexican debt crisis. Greenspan notes to his shock that Limbaugh doesn't rant but "listened politely.")

As for the Democrats, you can see why they want to recast history — doing so makes them appear reasonable and centrist, an ideal look for the 2008 election campaign. Their party may well own the decade of the golden '90s, a period that looks better every year that passes. But they don't own it alone.

(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.

© Copyright 2007 Bloomberg

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