Greenspan reign a testament to Reaganomics

January 10, 2000|By George F. Will

WASHINGTON -- Assuming that God does not interfere -- he would be guilty of lese-majeste -- the fourth branch of government, aka Alan Greenspan, 73, is shipshape for four more years. Ironies abound.

Mr. Greenspan's predecessor as chairman of the Federal Reserve Board, Paul Volcker, was nominated by Jimmy Carter. Mr. Volcker's task was to extinguish inflation. Inflation, like the Iranian hostage crisis and the oil shocks of the late 1970s, told Americans they had become playthings of forces their government could not master, and that their government could not protect the currency as a stable store of value.

Mr. Volcker's success against inflation was crucial to the 49-state re-election victory of the man who defeated Mr. Carter in 1980. Now President Clinton has renominated Mr. Greenspan, who was nominated to his first term by President Reagan. Mr. Clinton's hope is that his legacy, aka Vice President Al Gore, can run on President Eisenhower's 1956 slogan of "peace and prosperity."

Mr. Clinton began his first term exasperated by the need to keep the bond markets mollified by restraining public borrowing and dampening fears of inflation. Bob Woodward, in his book "The Agenda," reports that Mr. Clinton exploded during an April 1993 meeting with aides:

"`I hope you're all aware we're all Eisenhower Republicans,' he said, his voice dripping with sarcasm. `We're Eisenhower Republicans here, and we are fighting the Reagan Republicans. We stand for lower deficits and free trade and the bond market. Isn't that great?'"

Certainly it is pretty good for conservatives, who should see, as Stephen Moore of the conservative Cato Institute says, that "On balance (this) has not been a liberal presidency." Jonathan Chait, writing in the liberal journal

cf03 American Prospect,

cf01 exaggerates only a bit: "Clinton's economic program is far more fiscally conservative than anything a president of either party would have dared propose anytime in the past three decades."

What Mr. Chait calls Mr. Clinton's "progressive fiscal conservatism" means less public borrowing, more private investing, lower short-term interest rates, a bond market psychology conducive to low, longer-term interest rates. This has produced "a strange reversal of historic roles." Liberals speak of growth. Conservatives, their vocabulary pre-empted, speak as liberals used to, in moral rather than economic language. They promote a tax cut as "fair" and "deserved" rather than needed for economic efficiency.

Mr. Clinton's reverence for a central banker like Mr. Greenspan is historically anomalous, even if the Fed was created by a Democratic President, Woodrow Wilson. Mr. Clinton's party celebrates its pedigree with annual Jefferson-Jackson Day dinners -- Andrew Jackson, scourge of the national bank.

Mr. Greenspan, then in the private sector, campaigned with Mr. Reagan 20 years ago, when conventional economic wisdom was pessimistic. The theory was that inflation is the systemic disease of democracy: The dynamic of democracy -- people wanting to consume more than they produce -- produces inflation, and the low pain threshold of democratic people makes it impossible for democratic governments to suppress inflation. That theory was slain by a fact: Despite the 1981-82 recession -- the worst since the Depression -- in 1984 Mr. Reagan carried every state but Minnesota.

"The Buck Starts Here," proclaims a sign in Mr. Greenspan's office. He has seen something no other economic policy-maker has seen -- a fundamental transformation of America's economy during his tenure.

Mr. Greenspan says: "While the weight of current economic output is probably only modestly higher than it was a half-century ago, value added, adjusted for price change, has risen well over threefold."

That is, 50 years ago "output" meant "things, big physical things." But soon "concepts and ideas would substitute for physical resources and human brawn."

The resulting wealth creation is radiating large, if unpredictable, consequences. Neal Freeman, of the Foundation Management Institute, says America is about to experience a stunning intergenerational transfer of wealth: "The Reagan entrepreneurs, lots of them, are about to leave large estates, lots of them, to their baby boomer children." Between now and 2020 Americans between ages 35 and 53 will inherit $12 trillion. That may trigger irrational exuberance, and then a scowl from the fourth branch.

George F. Will is a syndicated columnist.

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