The great wizard strode calmly into the hallowed halls of the Senate, easing himself into a gilded leather chair. As he cleared his throat, his esteemed audience fell studiously silent to hear their fortunes told. As this revered man of immense power spoke, his speech was videotaped and transcribed, every word to be parsed and inspected by brilliant financial experts across the globe.
But to those with a keen ear, the speech sounded something like this:
"Blah Blah Blah Blah Blah, I screwed up, Blah Blah Blah."
Alan Greenspan, for all his eloquent words cloaked in triple entendre and mystery, admitted he has been driving blind on the economic super highway. The current pileup is his fault. Now, we are measuring the skid marks of his economic wreck.
Mr. Greenspan ... you are busted.
Over the last year, Greenspan jacked up interest rates chasing an inflation bogeyman that never existed. Our great economy promptly fell into the toilet and trillions of dollars were shaved off America's wealth. Now, we have zero growth. Why? Because His Eminence believes in Model T economic theories in a Ferrari economy, that's why.
Essentially, Greenspan is guilty of several violations:
Violation #1 - Believing a simplistic "Supply-Demand" theory, which states that rising demand causes inflation. Greenspan's favorite economic indicator is scrap-iron price. Scrap iron? Since when does Microsoft use scrap iron? Hey, Alan? A new computer program costs about 35 cents to ship the CD out the door. Development has been paid for. Now it's all profit. There is no drain on fixed resources, and no inflation.
Violation #2 - Thinking increased product demand equals labor demand, creating inflation. This is the most cockeyed theory of all. Labor costs may have risen, but production costs have dropped faster, causing deflation in many instances. Has anyone checked the prices of an electronic gear lately?
Violation #3 - Believing strong growth equals inflation. Does anyone remember the 80s? We had even stronger growth with almost no inflation. Remember the 70s? We had no growth and incredible inflation. Inflation can happen in dozens of ways, but rarely from wealth creation and growth. Stupid monetary policy creates inflation, however. Growth is simply growth. We are building bigger, better and faster mousetraps and reaping the rewards. What's wrong with that?
Violation #4 - Accusing the stock market of growing "too fast." What a hoot! The stock market represents public confidence in wealth creation. This is not just measured in "bricks and mortar" anymore. Intellectual value is often more important. Maybe if today's politicians held real jobs and actually used computers they'd understand the new economy.
So if Greenspan is wrong, why did an economy zipping along at 5% growth screech to a halt? First, tax thresholds haven't changed since the 1993 increases. As the economy grows, this has the slowing effect of a tax increase. Second, the Microsoft antitrust legislation proved no good idea goes unpunished by the government. Investors pulled back from the high-tech cutting edge and innovation hit a brick wall. A stock market and retail pileup followed. Now, we are in the body shop fixing the dents. Shall we repair the wreck with tax cuts or interest rate cuts? Tell me why do half the repairs? What good is a rate cut without money to spend? Tax cuts put money back in the wallet and into the economy. Greenspan told the Senate Budget Committee a tax cut would do "noticeable good" for the American economy. Hey, Alan "DUH!" Tax cuts always do noticeable good for the economy. Every tax cut since 1960 boosted growth and revenue. Every tax increase since 1960 has slowed growth and slowed revenue. You might wonder why a smart man like Alan Greenspan cannot grasp these obvious issues. Perhaps he's been looking at the Beige Book instead of watching the road. Or maybe he's been on the cell phone chatting with his liberal wife's liberal friends instead of looking where he's driving. Oh well, better swerving late than never.
Whatever the reason, Alan Greenspan has been driving 25 in a 65 mile per hour zone, missing too many curves, and he keeps plowing through stop signs then driving with his left blinker on for miles on end. And he has a history of bad driving, having engineered another major wreck in time to help the Clinton election in 1992. Maybe it's time we yanked his license.