Greenspan's minimalist moves

May 23, 1999|By George F. Will

WASHINGTON -- Doctoral dissertations will proliferate, arguing how much credit to assign to Robert Rubin, during whose tenure as treasury secretary the American genius for wealth-creation has set new records. Already there is the whine of axes being ground.

Keepers of the flame of Reaganism say that today's cornucopia economy is the result of their man's tax-cutting and deregulating. To the extent that deregulation has spurred today's boom, Jimmy Carter gets credit for beginning the process with airline deregulation.

Taking stock

A study done for NASDAQ finds that the proportion of Americans owning stocks doubled in the 25 years between 1965 and 1990, then doubled again in the next eight years. James K. Glassman of American Enterprise Institute notes that 37 million households -- three of every eight families-- own mutual funds, and 70 percent of those funds are owned by persons with incomes under $75,000.

James Twitchell of the University of Florida, author of the new book "Lead Us Into Temptation: The Triumph of American Materialism," believes the pervasiveness of affluence changes the political categories: "One of the reasons terms like Yuppie, Baby Boomer, and Gen-X have elbowed aside such older designations as `upper middle class' is that we no longer understand social class as well as we do lifestyle, or what marketing firms call `consumption communities.' " Hence Al Gore talks more about suburban sprawl than about poverty.

But, then, poverty has peculiarities in a country this prosperous. W. Michael Cox of the Federal Reserve Bank of Dallas and Richard Alm of the Dallas Morning News, co-authors of the new book "Myths of Rich and Poor," report that two out of three poor families have microwave ovens, and three out of four have VCRs for their color televisions. And Dr. Twitchell reports that the average American consumes twice as many goods and services as in 1950, and today's poorest fifth of the population consumes more than the middle fifth did in 1955.

Since November 1982 the economy has been in recession just nine months, or 4.5 percent of the time. As Mr. Cox and Mr. Alm note, between 1853 and 1953, the nation was in recession, or worse, 40 percent of the time. We have learned a thing or two about managing a modern economy, such as: Do not try too much managing. Alan Greenspan understands.

He recently warned that inflation remains a danger. The news in this was that America needed reminding. Twenty years ago, when the misery index (remember: the inflation rate added to the unemployment rate) was 20.6 percent, prudent people worried that inflation was the systemic disease of democracies. That is, democracies could not resist deficit spending, and would use inflation as slow-motion repudiation of their deficits.

Furthermore, democracies, with low pain thresholds, could not endure the pain in wringing inflation from the system.

The low pain threshold is real. The recession of the early Reagan years was considered horrendous and was the worst of the postwar era. However, it involved a contraction of less than 3 percent of GDP. In the 55 years prior to the postwar era (1890-1945), the economy contracted 5 percent three times, 10 percent twice and 15 percent twice.

One reason for Mr. Greenspan's anxiety about inflation is itself stunningly good news: an unemployment rate down to 4.3 percent. Just a generation ago, economists spoke of a "full employment" budget, which calculated what the deficit would be under full employment, understood to be 5 percent unemployment.

Lower pressures

Today, 78 metropolitan areas have unemployment rates below 3 percent. Yet upward pressure on wages is mild, in part because workers do not feel the need to sprint ahead of inflation.

Employment in manufacturing declined another 400,000 last year, but that, too, is good news, considering that while the percentage of the work force in manufacturing has declined from 35 percent in 1947 to 15 percent today, manufacturing as a portion of the economy has held at 20 percent for three decades. For reasons both technological and managerial, the manufacturing work force is increasingly productive.

Successful societies, being prone to complacency, need Cassandras, and Alan Greenspan looks the part. Although in private he has been known to smile and is rumored to laugh, he is not given to irrational exuberance in public, where his countenance is that of a basset hound with a secret sorrow. His job is to spot, or even to postulate, lead linings on even the most silver clouds.

He construes the Federal Reserve's role narrowly, to protect the currency as a store of value, rather than to fine-tune the economy to produce high employment. Which is why there is such high employment. Once again, a minimalist mission by government produces maximum results.

George F. Will writes a syndicated column.

Pub Date: 5/23/99

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