Chewing over economic bounty

February 20, 2000|By George F. Will

WASHINGTON -- The president, the Senate and everyone with a greenback in his wallet has concluded that Alan Greenspan is as cute as a little red wagon and deserves a fourth four-year term as head of the Federal Reserve Board.

The apotheosis of this central banker, in the record-setting 107th month of the uninterrupted economic expansion, accords with the public's hunch during this presidential season: Politics today is only marginally related to social betterment.

Recently the Fed has several times raised interest rates. Should it have? Irwin Stelzer, a consultant and fellow of the Hudson Institute, cheerfully says: "If we could know such things, the Soviet Union would still be with us because economies could be `managed.' "

Chastened government no longer believes it can fine-tune the economy with "countercyclical" taxing and spending. Interest rates are government's only tools for managing. Mr. Stelzer says that when government decides to raise rates -- always on the basis of imperfect information, and today in a swiftly changing economic context -- it is deciding to err.

The question is, to err in which direction? To raise rates too much too soon? Or too little too late? Today the prudent answer is the former, given 5.8 percent growth in the last quarter. Such growth is hard to dampen, particularly with consumers on a binge.

National Journal reports (from business consultant Faith Popcorn) that beef consumption has hit a record 64 pounds per person per year, the number of weight-loss centers has fallen 46 percent in the past five years, and Eating Well magazine folded last year. A truth that Ms. Popcorn tickles from these facts (and from all the soaring popularity of cigars and martinis) is that consumers are in no mood to be hectored about health, self-restraint or other kill-joy values.

Also, baby boomers have decided to skip adulthood: Grown-ups (speaking biologically) largely accounted for the $400 million gross of the recent reappearance of "Star Wars." The median age of buyers of Harley-Davidson motorcycles, which 10 years ago was 34, now is 42. Consumers, like children generally, are not interested in deferral of gratification, so there is ample fuel in the economy's tank.

Still, some analysts, virtuosos of pessimism, say the economy is in a "stealth bear market," a stock market whose continued rise has been driven by a relatively few extremely hot stocks. Last year more than half the stocks on the Standard & Poor's index of 500 stocks declined. Economic columnist Robert Samuelson reports that in 1999 there was twice as much investment in initial public offerings (IPOs) as in 1998. Half was for Internet start-ups, and almost three-quarters of those were unprofitable or nearly so.

Mr. Stelzer says this is an aspect of an enormous transfer of wealth between sectors of the economy, from traditional companies (e.g., Coca-Cola, Procter & Gamble, GM) to the "new economy" technology companies. One phenomenon behind this transfer is indicated by this fact, from National Journal's John Maggs: in 1999 brokers began advertising on telecasts of professional wrestling.

The stock market has been democratized. A majority of American families now own some form of common stock. Many of those families have scant, if any, experience with anything but rising markets. Their optimism contrasts markedly with the pessimism that Mr. Maggs recalls from January 1990, when the Gallup Poll found that three-quarters of Americans expected their financial situation to be worse by 2000, 64 percent expected it would be harder for young people to find jobs, 79 percent expected retirement would be more difficult to afford, 81 percent expected it would be harder to afford a house.

The political consequences of 1990s wealth creation is that even rhetorical opposition to "big government" and the welfare state has lost its resonance, perhaps because of the 1980s. Ronald Reagan guaranteed government's flourishing, in two ways.

His deficit spending made big government inexpensive: People were charged about 81 cents for every dollar of government they got. And now surpluses, produced by the essentially uninterrupted (just two quarters of contraction in the early 1990s) 17-year boom that began in Mr. Reagan's first term, have made big government seem free. That is, people get additional government without additional taxes.

Bill Clinton is the first president since Dwight Eisenhower under whom federal spending per capita has declined. Under both the decline was largely because of a shrinkage of defense spending. The current shrinkage will have to be reversed, and this will presumably be paid for by the surpluses. They are projected "as far as the eye can see," just as deficits were projected, not long ago. Which says something sobering about how far we can see.

George F. Will is a syndicated columnist.

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