At last, Alan Greenspan’s eyes may have opened to the economic damage government can cause.
”In an economy that already has lost some momentum,” the Federal Reserve chairman said December 5, “one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending.” English translation: If the economy keeps slowing, you and your boss could find coal in your Christmas stockings.
What did Uncle Alan expect? In his battle with an inflationary foe only he detects, Greenspan’s 18-month-long campaign of interest-rate increases was designed to retard the economy and is largely responsible for doing so. Greenspan is like an arsonist who watches a family evacuate a home he has set ablaze and helpfully tells them: “Hey, your house is burning.”
Regrettably, Wall Street still worships Greenspan as a financial god. America’s amazing economy is smoldering, largely thanks to government. And Greenspan is chief among the politicians, bureaucrats, and lawyers whose matches and gasoline have set smoke swirling everywhere.
Initial unemployment claims rose 19,000 to 358,000 in late November, a two-year high. Third quarter GDP grew at just 2.4 percent, down from 5.6 percent in the second quarter. Durable goods orders, auto sales and retail purchases are down. New home sales fell 2.6 percent in September. October’s index of leading economic indicators dropped 0.2 percent. This gauge has been flat or falling for the last nine months.
America’s non-profits could use some charity. Donations to community trusts are off 10 to 20 percent. Gifts to the American Red Cross have plunged 60 percent this fiscal year.
After waning in 1999, personal bankruptcies are forecast to rise 15 percent in 2001, according to New Jersey-based SMR Research Corp. “We’re like vultures perched on the telephone pole, waiting for the disaster so that we can eat,” Maryland bankruptcy attorney John Garza told the Wall Street Journal. “The vultures are about to spread their wings.”
Private enterprises deserve some blame for this carnage. Many of the high-flying dot-com start-ups, such as boo.com, were little more than logos with hard drives attached. Their pumped-up valuations, now long forgotten, reflected sassy marketing rather than solid business plans.
“The fact that they’ve disappeared and the money that was going to them has been released to companies that care about making profits is probably healthy,” says Anil Kashyap, economics professor at the University of Chicago Graduate School of Business.
Government, however, priced others out of the capital markets. The Fed’s six interest-rate hikes since June 1999 slowly but surely starved outfits that otherwise might have survived. Instead, concerns like Pets.com evaporated, turned to kindling, then ashes.
OPEC — a global, government-led cartel — also is battering the economy with high oil prices. American diplomats and energy-department officials usually cajole OPEC into producing enough petroleum to moderate U.S. power bills. But this year, as the stunningly inept energy secretary Bill Richardson confessed, “We were caught napping.” OPEC has tightened its spigots and pushed crude as high as $37.20 per barrel.
The Environmental Protection Agency’s demands for special gasoline formulations further raised pump prices. Green regulations also have stymied domestic-oil exploration and fueled the closure of 36 refineries since 1990, propelling energy costs higher still.
The justice department’s jihad on Microsoft, Sprint, AOL-Time-Warner, and other anti-trust targets has spooked CEOs. So have the lawyers leaping through Tallahassee, delaying an electoral decision and turning investors’ dollar signs into question marks.
Since government inspires so much mischief, the answer is less of it. At its December 19 meeting, the Fed should terminate its bizarre, hand-wringing obsession with a make-believe inflationary “threat” and begin cutting interest rates to avoid a recession. Technology-led productivity growth and global competition will continue to check inflation.
Should George W. Bush become president, he should ask Congress to pass across-the-board reductions in income, corporate and capital-gains tax rates to forestall a recession and restore America’s vibrant growth. While Democrats may be reluctant to cooperate, Bush should emphasize that he is offering them and the country perhaps the last exit before merging onto the Recession Highway. If Democrats don’t help him steer for that final off-ramp, they should pay the price for any ensuing unpleasantness.
Americans should not be surprised by what the state has wrought. “Government is not reason; it is not eloquence,” George Washington observed. “It is force. And like fire, it can either be a dangerous servant or a fearful master.”