Was going to write something different about this article until I came upon this:
After the Republicans took control of Congress in 1994, they again pressed for capital gains rate cuts.Greenspan was then near the peak of his credibility in Washington. In 1993, he promised Clinton that he would lower interest rates if Clinton backed a deal to narrow the budget deficit. Both men delivered, building trust.
By 1997, the GOP leaders were turning to Greenspan for economic cover and inspiration.
“Now I agree with Steve Moore and Alan Greenspan that the correct rate is zero if you want maximum economic growth,” House Speaker Newt Gingrich (R-Ga.) said at the Cato Institute on July 16, 1998. “If you really wanted the most wealth created over the next 20 years, you would have a zero rate for the capital gains tax, which is a tax on job creation” [...]
Clinton, seeking compromises with Congress, agreed to cut the capital gains tax rate to 20 percent.
“The irony is that Reagan got rid of the preferential rates for capital gains and Clinton put them back in,” Sullivan said.
Did this really happen? I was under the impression---mistaken, obviously---that the policy goals of the Federal Reserve were to set monetary policy with the aim of (a) achieving full employment, and (b) controlling inflation, not (c) using the prime lending rate as leverage to shrink the size of the government, or to squeeze out some tax cuts for your banker friends. This may have been perfectly legal, of course, but how, really, is this kind of interest-rate rigging any different than what happened in the LIBOR scandal? Absent the formation of some massive asset bubble (which came later in the decade), the budget deficit alone wouldn't have provided any reason to raise or lower interest rates if inflation was under control (it was) and unemployment was coming down (it also was). This was just a shakedown to extract political favors.
And as a special added bonus, the President who sought compromise with Republicans on taxes and the deficit was rewarded for his efforts by getting impeached by them. Have we always been ruled by freebooters and dunces, or is this just a fairly recent phenomenon?
---Baron V
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