Imagine flying on a 747 from New York en route to sunny Southern California. Suddenly, the jet jerks sharply to the right, narrowly missing a mountain top in the Rockies. Would you praise the pilot for avoiding a collision or have him grounded for drifting so perilously off course?
Americans similarly are wondering how to interpret Alan Greenspan’s unexpected 0.5 percent decrease in short-term interest rates on January 3. Just two weeks earlier, Greenspan interrupted the in-flight entertainment to reassure everyone on board. The central bank acknowledged that “economic weakness” posed a greater risk than did inflation. Nonetheless, a December 19 statement declared, the Fed merely would “continue to monitor closely the evolving economic situation.” This position flatly contradicted the Fed’s November 15 conclusion that “heightened inflation pressures” were more worrisome than a slowdown.
Greenspan flew on as if nothing were amiss. Meanwhile, the warning lights continued flashing all around him, as they had for months. The Dow Jones Industrial Average fell 6.2 percent in 2000 while the tech-heavy NASDAQ plunged 39.3 percent. Consumer confidence sagged each month in the fourth quarter, as did auto sales. Manufacturing payrolls shrank from August right through year’s end, falling by 62,000 positions in December alone. According to the Challenger employment report, 133,000 Americans were laid off in December, the most monthly dismissals since 1993.
The dreadful shriek of the National Association of Purchasing Managers Survey finally snapped Greenspan out of his daze on January 2. The NAPM composite index fell to 43.7 in December, its lowest reading since America emerged from the last recession in April 1991. Figures below 50 signal a manufacturing contraction.
The very next day, the Fed surprised investors by cutting the federal-funds rate a half-point to 6 percent. Still, Greenspan’s sudden, evasive measure has done little to stop the carnage 30,000 feet below.
Office Depot will padlock 70 outlets and fire 1,470 employees. Sears, reeling from a 1.1 percent drop in December sales, plans to shutter 89 stores and sack 2,400 individuals. Sluggish sales have prompted General Motors to idle eight plants as of this month, forcing 21,000 hard-working men and women onto the streets. Chrysler and Ford plan factory closures as well.
This Fed-inspired mayhem could have been avoided. A generous rate cut delivered at the Fed’s December 19 meeting would have boosted the confidence of Christmas shoppers and retailers alike during the year’s most commercially sensitive time for millions of businesses. Instead, the Fed refused to refill the egg-nog bowl. Consumers and store owners groaned. With the gift wrap and ribbons returned to America’s attics until next December, retailers now wish Greenspan had kissed them under the mistletoe rather than merely show them some ankle by hinting at interest-rate cuts.
The pain among Old-Economy firms is exceeded only by the scores of now-deceased companies in the New Economy, which has lost 36,000 jobs since July, NBC News reports. The New York Post now publishes a feature called “Dead Dot.com of the Day” including a sketch of a computer terminal decaying in a garbage can. The cover of the current Silicon Alley Reporter perfectly summarizes the travails of the once high-flying dot.com sector. It simply shows a photo of the Hindenburg exploding.
For years, Greenspan and Federal Reserve Airways have promised smooth, predictable service. Remember their famous slogan? “Fed Air: Where every landing is a soft one.” But the voyage to Nirvana on which Captain Greenspan and his crew embarked is now long forgotten after six turbulent rate hikes totaling 1.75 percent between June 1999 and May 2000.
But this is nothing new. Greenspan has veered off course time and time again, even as frequent fliers from Wall Street to Washington gullibly applauded as he wandered maplessly through the skies.
Last April 3, a cover story by Gene Epstein of Barron’s compared Greenspan’s flight plans with his contrails. On economic growth, Greenspan said on February 26, 1997 that there would be “measured real GDP growth of 2 percent to 21/4 percent over the four quarters of the year.” Actual 1997 growth: 4.1 percent.
On February 24, 1998, Greenspan announced: “The growth rate of real GDP is most commonly seen as between 2 percent and 23/4 percent over the four quarters of 1998.” Actual 1998 growth: 4.7 percent.
On February 23, 1999, Greenspan predicted that “Economic growth this year will slow to a 2 1/2 percent to 3 percent rate.” Actual 1999 growth: 4.6 percent.
Greenspan fared no better on unemployment, predicting 51/4 to 51/2 percent joblessness in 1997, even as that year’s figure dropped to 4.7 percent. In 1998 and 1999, he expected joblessness to remain “about unchanged” while real-world figures fell further to 4.4 percent and 4.1 percent, respectively.
Inflation — the bete noir that haunts Greenspan’s every waking moment — is nowhere to be seen. Gold prices are stuck at about $265-per-ounce. Oil prices shot up to $38-per-barrel, but have slid back to about $29 while having a limited impact on overall purchasing power. The consumer price index remains tame, rising 2.7 percent in 1999 and 3.4 percent in the 12 months ended last November. Excluding food and energy costs, the core CPI rose just 2.6 percent in that period (the most recent measured).
Reviewing these data, one cannot escape the conclusion that Alan Greenspan simply does not know what he is doing.
Again, this is nothing new. On October 2, 1990, Greenspan told his Fed colleagues: “The economy has not yet slipped into a recession.” The National Bureau of Economic Research later concluded that the recession had begun in July 1990. Amazingly, Alan Greenspan — regarded almost universally as nothing less than an economic genius — did not recognize a recession even after he had been standing in one for three months. There is little evidence that the 74-year-old’s powers of perception have sharpened in the intervening 11 years.
More than economic savvy, Captain Greenspan has benefited from gallons of favorable, indeed reverential ink. Alone among people in “the dismal science,” Greenspan has starred in a veritable cult of personality.
- Veteran journalist Bob Woodward compares him to a symphony conductor in his Greenspan biography, Maestro.
- On Christmas Day, CNN’s Tony Guida glowingly called Greenspan “the man who steers the luxury liner called America.”
- California governor Gray Davis visited President Clinton and Energy Secretary Bill Richardson late last month to discuss the Golden State’s power crisis. He also was granted an audience with Greenspan, perhaps to seek his views on electric-power generation and distribution, or perhaps to receive his benediction.
- Los Angeles Times cartoonist Darrin Bell skewered all this absurdity by showing a little girl saying grace before dinner while her parents stare in astonishment. “Greenspan bless Mommy,” she says. “Greenspan bless Daddy, and Greenspan bless Playstation.”
As Fed Air Flight 1 rapidly loses altitude, Americans are beginning to realize that Greenspan is neither Jesus, Moses, nor Mohammed. He is a fallible, mortal human nine years past legal retirement age. He lacks accountability and possesses more power than should reside in one pair of hands. His fetish-like fear of an inflation monster last seen in 1983 causes him to chart a flight path widely divergent from where the great 747 actually travels.
Captain Greenspan should not be flying a jumbo jet, much less arrogantly attempting to guide Earth’s premier financial superpower. (America neither requires nor deserves an economic pilot any more than Cuba does.) Too bad his term continues until June 20, 2004. Alan Greenspan could serve his country best by immediately leaving the cockpit, grabbing a cocktail, and taking a narrow seat among the nervous passengers in economy.