by John M. Curtis
(310) 204-8700

Copyright April 15, 2000
All Rights Reserved.

iddling away at the White House, president Clinton was uncharacteristically tongue-tied about the meltdown on Wall Street. Threatening to steal the crown jewel of his presidency—and hopes for Al Gore in November—the ailing stock market needs something more than today’s version of economic managed care. Crying out for a doctor, the ubiquitous Fed chairman Alan Greenspan refused to make a house call. Like so many others, he watched the carnage from his luxury box, sipping lemonade while his fraternity—and American business—took a merciless beating. Was it too much to ask for some cheap reassurance? Everyone waited—but not a peep. Only perfunctory platitudes to the Senate Banking Committee about arcane economic theory. Simply reminding hysterical investors that the 'fundamentals' were still in place, might have done the trick. Yes, most people admit that share prices are inflated, but so are Maytags. With the price of Volkswagen beetles exceeding $24K, where’s Greenspan been living. Hello! Greenspan to planet earth: do you read me?

       While he’s looking at the GDP deflator or CPI, most Americans are sweating it out at the pumps trying to make ends meet. How logical is it to drive financial markets into chaos because he’s worried about the prospects of inflation? What’s worse? Driving tax payers or corporations into bankruptcy or tolerating a little inflation without hitting the panic button? Greenspan’s been too negative in recent months. When he can’t find credible evidence of inflation, he invents new indexes to prove his point. Obsessing about the wealth effect seems pointless. What does he want—the poverty effect? Are most people really making too much money? I don’t think so. Tell the Big 3 automakers who can’t give away their SUVs because of obscene fuel prices. Does the 'wealth effect' make any sense at all? Punish tax payers for spending too much money on big-ticket items? You can’t have it both ways: People don’t open their wallets when they’re broke.

       What’s wrong with a little inflation? Is it better to drive people into unemployment? Dr. Arthur Laffer’s supply-side theory—the chief architect of Reaganomics—predicted small—but tolerable—increases in inflation when unemployment drops. With more people chasing a finite amount of goods, it only makes sense. What’s wrong with people paying a little more for their basic commodities or discretionary obsessions? That’s got to be preferable to pulling the rug out from underneath millions of hard working investors. Greenspan’s doom and gloom scenario became a self-fulfilling prophecy. Talking about inflated share prices does little other than breed morbid anticipation of bad news. Why look for bad news when so much good is happening?

       Why is it OK to bail out upscale hedge-funds but it’s not OK to keep interest rates low and stabilize financial markets? President Clinton is wrong when he blames Republican tax-cut proposals for threatening the budget surplus. Tax cuts aren’t the culprit. It’s the Federal Reserve whose misguided monetary policy promises to torpedo the bull market, economic prosperity and, yes, eventually the budget surplus. Promoting widespread distrust among investors, now fearful that Greenspan will continue turning the screws, is self-destructive. Adam Smith would be gyrating in his grave with the type of micromanagement that now goes on in our 'free' economy. How is it laissez faire to allow Wall Street to twist and turn but it’s not when he chooses to tinker with other aspects of the economy? Does free enterprise only permit the Fed chairman to sabotage financial markets and not to save them when they need his help?

       When Al Gore rails against George W. Bush’s tax cut plan, he’d better first admit what’s really responsible for balancing the books and generating the surplus—the 5 year old bull market. Reagan proved that recycling taxes back into the pockets of American workers actually reduced inflation and promoted economic expansion. Torpedoing the economic recovery and pulling the rug out from underneath millions of Americans who trusted the stock market to secure their retirements, can’t be the only solution to managing fears about inflation. When energy prices spiral out of control, they filter into every aspect of the economy, even when they’re ferreted out of the energy equation. Greenspan’s not responsible for OPEC’s choke-hold on energy prices. Falling asleep at the switch, the Clinton administration must take the heat for allowing the world’s largest fossil fuel monopoly to put their best customer over the barrel.

       Generating responsible bilateral trade accords isn’t the responsibility of the Federal Reserve. If energy costs are out of control, it’s time for the Department of Energy and Congress to regulate foreign energy suppliers doing business in the United States. Free markets aren’t really free, when you consider the red-tape of doing business in various countries. Throwing Wall Street into utter chaos also isn’t the answer for getting a grip on inflation. When Greenspan warned of 'irrational exuberance,' he was essentially fulfilling yesterday’s prophesy of how bloated markets will someday get their comeuppance. Touting the 'fundamentals' as sound, Greenspan gave little real warning that he intended to take down financial markets. With the market now melting down, maybe he’ll reconsider the next dose of pain when his Open Market Committee meets again in May. Are a few tenths of a percent really that significant to risk sabotaging the current economic expansion?

       When respected Wall Street analysts shoot off their mouths and cause panic selling, it’s important for the Fed chairman to give some reassurance. All the talk about sound 'fundamentals' mean little if he doesn’t step up to the plate when it counts. While many Americans have empathy for poor Elian Gonzalez, they prefer to reserve their sympathies for their own misery. Sending financial markets into anarchy shows poor management by permitting market forces to get out of control. Most players know that the markets will bounce back. But with many more Americans counting on the stock market to secure their futures, the Fed chairman must show greater sensitivity to the plight of hard working tax payers—not just his Wall Street cronies. It’s not rocket science to know that Wall Street still needs big daddy’s reassurance.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for The Los Angeles Daily Journal. He’s director of a Los Angeles think tank specializing in human behavior, health care, political research and media consultation. He’s the author of Dodging The Bullet and Operation Charisma.

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