Federal Reserve Chairman Alan Greenspan and White House officials disagreed over the reason for slow US growth and the need for additional stimulus from tax cuts such as those proposed by President George W. Bush.
Greenspan told the House Financial Services Committee the economy doesn't need help because business and consumer spending will pick up once it's clear what will happen with Iraq. White House economic adviser Glenn Hubbard said companies' reluctance to buy new equipment is a bigger restraint on growth.
PHOTO: AP
"Economists don't always agree," Hubbard said in remarks to the US Chamber of Commerce. "Geopolitical risks are a key source of uncertainty in the economy, but I don't think they're the only ones."
The debate underscores the difficulty Bush may face in winning approval for his US$690 billion plan to speed up tax rate cuts already approved by Congress and eliminate double-taxation of corporate dividends. Opponents say the plan benefits mainly the rich, won't do much to aid the economy, or costs too much.
Greenspan said the economy is likely to grow even without added stimulus. The central bankers expect the economy to grow at a 3.25 percent to 3.5 percent inflation-adjusted rate between the fourth quarter of last year and the final three months of this year, Greenspan reported. That's up from a 2.8 percent gain last year.
In denial
White House spokesman Ari Fleischer said the administration has a "reasonable disagreement" with Greenspan over the need for stimulus. "The president will err on the side of helping those who look for work," he said.
Fleischer noted Greenspan doesn't oppose Bush's dividend tax changes. Because it will boost growth, all Americans would benefit, Greenspan said.
"There is no question that this whole program will be a net benefit to everyone in the economy over the long run," he said.
Greenspan reasserted his view that the elimination of the tax on dividends would create greater "flexibility" in the economy by encouraging more financing with equity versus debt.
Greenspan said the Fed is concerned about the tax plan's effect on budget deficit, estimated to reach a record US$307 billion in the next fiscal year. Higher deficits may mean higher interest rates, he said, crimping an "extraordinarily important prop" for the economy.
"If mortgage interest rates were to move up we would find that would have a marked impact on house turnover and clearly on refinancings and the cash outs that are associated with them," he said.
Greenspan's comments will make it more difficult to pass the stimulus package, lawmakers said. Senate Democratic Leader Tom Daschle called Greenspan's testimony the "kiss of death" for Bush's tax-cut plan.
A day after 10 Nobel laureates and 450 economists used a New York Times advertisement to criticize the tax plan, the Treasury released a letter signed by 250 Wall Street and academic economists backing it.
"It is fiscally responsible and it will create more employment, economic growth and opportunities," the letter said.
Harvard University professor Martin Feldstein, Nobel laureate Vernon Smith, and Michael Boskin, a former chairman of the Council of Economic Advisers, signed it.
Greenspan said he was speaking for himself and not the other members of the Fed in calling on Congress to restrain spending.
"There should be little disagreement about the need to reestablish budget discipline," Greenspan said.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
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