Early Millennial Thoughts Jude Wanniski January 5, 2000

GREENSPAN: The surprise announcement of Alan Greenspan's reappointment to a fourth term at the Fed was greeted by raspberries from Wall Street. It's the only way the markets have of telling him he is not getting better with age, as he has been in decline probably since his Fed partner Wayne Angell departed in late 1994 for Bear Stearns. Greenspan and Angell watched gold and commodities together in anchoring their monetary analysis, but with Angell gone, Greenspan drifted back into the conservative Keynesian mode that became the paradigm of the New Democrats. It did not help that President Bill Clinton has appointed a steady stream of Keynesian economists to the Fed. Clinton and Greenspan actually believe their austerity policies are responsible for producing the Goldilocks economy, rescuing it from the "smoke and mirrors" of the Reagan years, as the NYTimes still insists supply-side economics is all about. The only weapon Greenspan really has is the one variable under the Fed's control, the overnight funds rate, and it only is good for slowing the economy, not preventing inflation. Two of the most dovish Fed governors, including Dallas Fed president, Robert McTeer, no longer have voting rights when the FOMC meets next month. Rotating back in are two Phillips Curvers and a monetarist who still watches the monetary aggregates and thus will vote higher interest rates unless M2 collapses. The Greenspan appointment does not really change our just-okay assessment of the economy going forward. The only thing that would affect FOMC policy in a more positive direction would be a presidential mandate for monetary reform -- which does not seem to be in the cards.

Y2K FIASCO: I'm thrilled to pieces nothing much happened at Y2K rollover. Whatever problems remain will involve public finances -- if federal, state and local tax systems get snarled with remaining software problems. Our more bearish assessment was based on the 50 billion embedded chips in the world's infrastructure hardware and the best estimate, from government and private surveys, that 50 million would fail in mission-critical systems -- enough to cause a global economic slowdown. The end-of-the-world analysts such as Gary North were betting that 2.5 billion would fail, the number estimated two years ago. Even our 50 million assumption was probably off by a factor of ten. The warnings that glitches will continue to show up are still plausible, but once I saw the lights stay on in Moscow, I knew basic global infrastructure was safe and there would be sufficient IT manpower to handle the rest. Before the market opened Monday, I called to reinvest the 50% of the company pension fund I had liquidated at Thanksgiving.

BRADLEY TAX HIKES: My estimate early in 1999 that Bill Bradley would overtake Vice President Al Gore was looking good until very recently. Then Gore began to pound on Bradley for not properly financing his health-care plan. Bradley could have continued to ignore Gore, with the press corps uniformly helping by pointing out that Gore was misrepresenting Bradley's position. Instead, the former Knick took the bait -- hook, line and sinker. The plan announced today would close $100 billion in corporate loopholes over the next decade. Bradley assumes that because they mostly involve people who make their livings off the land -- western miners, ranchers, and oil producers -- he will not lose anything in the bargain, and will get Gore off his back by demonstrating "fiscal responsibility." The Gore camp undoubtedly is thrilled to see Bradley cave in with a pledge to raise taxes. Bradley now is the only candidate in the field who wants to raise somebody's taxes while budget surpluses extend as far as the eye can see. If he had gone the other way, he would have a much better shot at the Oval Office. Big mistake, Bill.