Greenspan's Incompetence Badgers Wisconsin's Workers

Greenspan's Incompetence Badgers Wisconsin's Workers

Sunday 20 February 2011

by: Dean Baker, t r u t h o u t | News Analysis

Then Chairman of the Federal Reserve Alan Greenspan adjusts his glasses as he prepares to make remarks before the House Financial Service Committee in 2003. (Photo: Doug Mills / The New York Times)

Alan Greenspan has been strangely missing from the fierce battle over the future of public sector unions in Wisconsin and other states. His absence is strange because he bears more responsibility for the current conflict than anyone else alive.

The reason is simple. Mr. Greenspan's incredible incompetence in allowing the $8 trillion housing bubble to grow unchecked created the fiscal crisis that is gripping Wisconsin and most other states.

To be clear, states always face financial stress in economic downturns. Most states had to struggle to balance their budgets in 2001-2002 and earlier in the earlier 1990-1991 recession. During a recession tax revenues fall. Consumers buy less, which means less sales tax revenue. Workers earn less money, which means less income tax. And property values fall, leading to less property tax revenue.

At the same time the need for state programs increases. Unemployed and underemployed workers are more likely to need public benefits like unemployment insurance, Medicaid, Temporary Assistance for Needy Families (TANF) and other public support programs.

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Recessions are part of capitalism and responsible leaders prepare for cyclical downturns. However this recession is no ordinary downturn. The recession officially began in December 2007, so it is now 37 months since the start of the downturn.

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