What About Greenspan, Dr. Krugman? Jude Wanniski February 22, 2000

To: Paul Krugman, NYTimes columnist
From: Jude Wanniski
Re: "Technological Determinism"

Did you happen to notice, Professor, that the stock market went into a swoon Thursday and Friday after Fed Chairman Alan Greenspan proclaimed that he will raise interest rates in order to prevent people from becoming wealthy? In the belief that you had heard about Greenspan's proclamation I waited patiently for the Sunday Times to bring me your column, only to find that you were writing about "Technological Determinism." While I found it rather astonishing that a Ph.D. economist of your eminence now believes technology drives the economy and economic policy no longer matters... if it ever did... I still wonder what you think about Greenspan's ability to knock $10 billion or so off the value of the nation's capital stock, with a few words to the House Banking Committee? What he said, straight out, was that a rising stock market is inflationary, because it makes people feel wealthier. They check the value of their portfolio or mutual fund and run right out and CONSUME goods and services, putting upward pressure on prices. He says he will NOT ALLOW the stock market to rise unless household income rises, which means, I guess, that Bill Gates has to give himself a pay raise before Greenspan allows Microsoft shares to go up. Wouldn't you say that is more or less right, Professor?

In the past, Dr. Krugman, you have referred to a textbook on economics that you have written, which you recommend to interested parties. I don't have a copy, but could you look through it and find out if there is anything about the inflationary effects of wealth? In the past, Greenspan has said that too many people finding jobs is inflationary -- because there must be a reserve army of unemployed keeping the supply of labor higher than the demand for labor. Is that in your textbook, too? I do know you think a rising stock market mostly benefits the rich. You've drummed that lesson into me. This is because poor people don't own more than a few shares of Yahoo.com and aren't likely to run out and consume like crazy because it is hitting new highs. Right? Do you think Greenspan is worried about upward pressure on the price of yachts and fancy sports cars?

Getting back to your column about "technological determinism," you seem to be arguing that for the most part the U.S. economy has expanded since 1980 because of inventions, not because President Reagan whacked marginal income tax rates to 28% from 70%. Indeed, you say parenthetically that you will "take on the myths of Reaganomics" some other day. (Please hurry.) While you say the politics of the last 20 years had nothing to do with where we are today -- "[T]he American economy would have ended up more or less in the same place." -- I see you note the growth train could have been derailed by "[S]ome of the really bad policy ideas of the 80's -- the heavy-handed industrial policies urged by the Democratic left, or the return to the gold standard urged by the Republican right."

Now at least you are talking economics, Professor, which is what I understand the Sulzberger family hired you to write about. Could you please devote some space to what was wrong with the idea of heavy-handed industrial policy? (I mean after you have devoted a column to destroying the myths of Reaganomics, of course.) Should it have been light-fingered industrial policy, for example? And explain to your readers what is wrong with a gold standard? And just to be sure we know what you mean, could you explain what a gold standard is all about. If you don't like a gold standard, what kind of standard would you recommend? Or do you think the Greenspan stock-market standard is about right? Or do you have any particular views on monetary policy, one way or the other?

P.S. If technology determines the state of the economy, what about Haiti? Maybe we should send them a bunch of dot coms, huh?