It must be really great to be Alan Greenspan. There he was, all over the news headlines and TV shows late last month, warning us that we will have to cut Social Security benefits in order to get the budget deficit down to size. Economists all across the country (myself included) were being asked about the wisdom of Greenspan's latest pronouncement.

The media display was especially impressive because Greenspan bears much of the blame for the huge deficits that he now proposes to close by cutting Social Security. In January 2001, Greenspan testified to Congress that President Bush's tax cuts were a good idea, because the budget surpluses were too large. They were so large, Greenspan told Congress, that he was worried we would pay off the national debt too quickly. Then the government wouldn't know what to do with all the extra money coming in. So he urged Congress to pass the tax cuts in order to reduce the projected surplus. Because this was Federal Reserve Chairman Alan Greenspan talking, Congress took his advice very seriously.

Needless to say, things haven't quite worked out as Greenspan predicted. We are now looking at near record deficits as far as the eye can see, with the federal government's borrowing projected to top $600 billion in the current fiscal year, according to the federal Office of Management and Budget. Three years after warning that the surpluses were too large, Greenspan is now warning of the dangers of large deficits. Instead of reversing the 2001 tax cuts, the bulk of which went to wealthy taxpayers, Greenspan suggests that we take the money from retirees' Social Security checks.

In most jobs, you get fired when you get something really important wrong in a big way. But when Greenspan messes up, he gets members of Congress writing measures to take money from retirees and widows.

This isn't Greenspan's first mistake on the job. He completely missed the onset of the recent recession, assuring Congress right into 2001 that the economy just faced a brief soft spot. He also missed the prior recession. The transcripts of the Federal Reserve Board's meeting show that he was predicting solid growth back in June 1990, a time when we now know the economy was already spiraling downward.

In addition, he missed the largest financial bubble in history, telling investors that the stock market run-up at the end of the 1990s might be justified by the acceleration in the economy's rate of productivity growth. The stock crash not only caused our latest recession, it also cost millions of families approaching retirement much of their savings. As a result, millions of older workers have been forced back into the labor market at a time when they expected to be enjoying retirement.

Greenspan's attack on Social Security seems especially mean-spirited, for he was the person who engineered the tax increases that were intended to pay for the Baby Boomers' Social Security. Greenspan chaired the 1982 Social Security commission that recommended raising the Social Security tax rate by more than 2 percentage points. It is important to remember that the Social Security tax falls disproportionately on low- and middle-income workers: A big city police captain pays the same Social Security taxes as Bill Gates. This regressive tax can be justified if it is used to finance Social Security, because the payback is very progressive: Those at the bottom get the highest payback rate.

But no one would have suggested raising Social Security taxes to pay for farm subsidies, the space program or defense. This is exactly the effect of Greenspan's proposal, however. The Social Security trustees' report shows that the program has enough revenue to pay all benefits for nearly 40 years, yet Greenspan wants to cut benefits so that Social Security funds can be used to finance the rest of the government. It's a good thing he's Alan Greenspan. Anyone else would be out of a job.

Dean Baker is an economist and co-director of the Center for Economic and Policy Research in Washington. He is co-author, with Mark Weisbrot, of "Social Security: The Phony Crisis" (University of Chicago Press, 1999).

©2004 San Francisco Chronicle

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