THE FED WARNS BUSH

Some have spun the rate cut as Greenspan’s endorsement of the Bush-Cheney line that the economy is going to hell and something must be done immediately to rescue it. The Fed’s rate cut, according to this argument, is a prequel to the Bush tax cut. But isn’t it likely that the opposite is actually true? Greenspan, like any good Randian, wants to see taxes lower. But he doesn’t want to see them lower out of a misguided attempt to jump-start the economy. One of Greenspan’s achievements has been to wean the Democrats away from Keynesian demand management. Why wouldn’t he now try and do the same to the Republicans? Greenspan is a deficit hawk before anything else. He doesn’t want to preside over a collapsing surplus or an inflationary boom in his last term in office. So he’s lowering rates now to reduce the pressure for a huge sudden tax cut, while not disavowing the potential for a phased-in modest tax reductions over the next two years. Subtle, and, I hope, effective. As long as Bush and Cheney get the message.