Everyone Loves Alan Greenspan Jude Wanniski March 12, 1998

In the March 9 National Review, Larry Kudlow says Alan Greenspan, not Bill Clinton, is the real President. “It is Greenspan who is responsible for the balanced budget, low unemployment, near-zero inflation, the strong dollar, and our prosperity.” He points to a recent Lou Harris survey of 400 senior executives, 97% of whom gave a favorable rating to Greenspan. Count us in the 3% of “senior executives” who give Greenspan an unfavorable rating, although we are sure Lou Harris was polling the Big Guys. For most of the 11 years he has chaired the Federal Reserve, we were in the majority of those celebrating his management. It is in the last year that he has forced us to withdraw our approval, because he has put himself at the disposal of the Political Establishment. In any event, we strongly disagree with Kudlow’s willingness to credit Greenspan with “the balanced budget, low unemployment, near-zero inflation, the strong dollar, and our prosperity.” The two who deserve credit for these are Jack Kemp, who blazed the supply-side trail, and Ronald Reagan, who built the foundations and the framework of our current prosperity. After a shaky start in his contribution to the 1987 stock-market crash, Greenspan had definitely been a success in preserving the dollar’s value as it was handed him by his predecessor, Paul Volcker. In the last year, though, his performance has been abysmal.

It is important I make that clear, because all the wrong lessons are learned by covering Greenspan with laurels when he has made a net contribution to global misery with the dollar deflation he helped engineer. Those of us who have seen our net worth jump in the last year should be crediting the voters, who re-elected Clinton and a GOP Congress with instructions to come to terms on a budget deal in a way that produced the critically important supply-side tax cuts that are fueling stocks and bonds. Greenspan’s deflation has been a net drag on our economy, as evidenced by the surge in bankruptcies in 1997, to 1,404,145 from 1,178,555 in 1996, and by the 500,000 homes that went into mortgage foreclosure. Chairman Henry Hyde of House Judiciary is thinking of having hearings on bankruptcy law, wondering if it’s too easy on debtors. His first witness should be Greenspan, who knows the Fed is responsible but won’t say so unless he is under oath.

In today’s papers, we see Indonesia’s President Suharto pictured at a Jakarta press conference, telling his 210 million people that because of the collapse of the rupiah, the rising living standards they have come to enjoy and anticipate will no longer be possible. The Asian financial crisis was due almost entirely to Greenspan’s decision to ignore the falling price of gold last spring as evidence that he was deflating the dollar. That was bad enough, but when the International Monetary Fund followed up with its own poison, calling for tax increases, currency devaluations, and bull-in-a-china shop bank closings, where was Greenspan? Standing side by side with Treasury Secretary Bob Rubin in arguing for another $18 billion of sustenance for the IMF. Is there a solution to defending the rupiah other than giving Jakarta $43 billion that is passed on to its creditors, the New York banks? Yes, the Bank of Indonesia can sell domestic assets from its portfolio, or the Finance Ministry can sell bonds for rupiah and shelve the receipts, or it can do a currency board with an appreciated rupiah.

Any of these methods would permit Suharto to tell his 210 million people that happy days are here again. And Greenspan knows this. But when asked officially, he says that once a country runs out of foreign exchange, it has no choice but devaluation! Like President Clinton, Greenspan is very smart, so when he offers statements of support for the Evil Empire, he hedges profusely.

Kudlow has acknowledged in print that some conservatives complain of Greenspan’s support of the IMF, but that the chairman cannot fight all the good fights. He has had to make a Faustian pact with the devil, in order to be permitted..... what? And how many Faustian pacts does it take?

Every time we pick up Investor’s Business Daily, which is becoming the financial daily of entrepreneurial capitalism, we find Rubin and his sidekick, Larry Summers, demanding that Japan embark on Keynesian fiscal adventures to goose its economy forward. Greenspan knows that the problem is in the deflated yen, and that the Bank of Tokyo should be adding liquidity to get the yen gold price up to ¥45,000 from ¥38,000. The supply-siders tell him that and so do the monetarists. And so does his own head. But the most powerful man in the world says nothing, because the corporate powers who financed the re-election of the President do not want Japan to become more competitive. The Rubin-Summers formula is designed to have the domestic Japanese economy heat up so it has to buy more from abroad. This so-called export-led recovery scheme comes out of moldy Keynesian textbooks written by Summers’s uncle, Paul Samuelson.

If this were not enough for Faust -- who you remember sells his soul in exchange for a youthful fling -- Greenspan has passionately embraced the same Phillips Curve he once ridiculed: 1) Too many people working cause inflation; 2) Interest rates must remain high in order to slow the economy; 3) The budget surplus on the horizon must not be used for tax cuts or spending increases, either of which would expand the economy. Greenspan decrees that any and all surplus funds that appear be used to pay down the national debt. In the past, he has testified before the Senate and House banking committees that the capital gains tax is the worst of all taxes because it is a tax on success, on national living standards. Will he say it is his considered opinion that the tax should be eliminated before anyone talks about paying down the national debt? Hmmm. The pact. He must have a long spoon to sup with the devil.

How does this happen? It happens because you are not independent even though you are the independent chairman of the Fed. When Pinocchio told the first lie, he was forced to tell all the others. I’m not saying Greenspan has been lying. I’m saying we have steadily watched him cave in to one political imperative after another, so there is practically nothing left of the chairman we knew and admired. He was the most powerful man in the world. Now, he walks around on a leash held by Bob Rubin. This has brought him the love and affection of the senior executives of the Fortune 500, at least 97% of them. On our global scorecard, though, he has had his worst year ever.