Why I Want to Shake Alan Greenspan
BROCKWAY, GEORGE P.
The Dismal Science WHY I WANT TO SHAKE ALAN GREENSPAN By George P. Brockway In Congressional testimony, Chairman Alan P. Greenspan of the Federal Reserve Board has talked, in his gnomic...
...The rich have done nothing to deserve their increased incomes...
...It does so by definition...
...But everyone who is active in the economy wants lower interest rates...
...Surely they are not altogether oblivious of what happens to real people and real societies in the real world...
...Greenspan only grappled on to that simple and obvious fact, and if he took seriously his concerns about a divided society, he might launch a policy of slowly reducing the interest rate, striving to use his great power to achieve a new soft landing for all of us in a larger, more generous, more inclusive, more united, and more rewarding economy...
...than would have been required before March 25...
...Judging from press reports, it would appear that the chief signs of inflation are a fall in the unemployment rate, a fall in the number of new applications for unemployment insurance benefits, faint signs that some wages may be rising almost as fast as productivity, and improvement in the sales of discount stores...
...Some say that a quarter-point increase in the interest rate can't hurt anyone very much...
...Sometimes you want to shake the man...
...That, too, should be obvious...
...Evidently inflation is not an increase in the cost of borrowing money, because raising the interest rate is the sole weapon the central bank uses in its perennial fight against inflation...
...I don't believe that...
...Evidently inflation is not all prices going up together, because they never have all gone up together...
...Well, we know why they did it...
...The rich will be distanced farther from everyone, from the middle class as well as from the poor...
...If it divides the society, I do not think that is good for any democracy of which I am aware...
...of the increase in the interest rate will be visited on the poor whether they are otherwise deserving or not...
...A slowdown means that fewer goods and services will be sold than would have been sold otherwise...
...Of course the "dispersion of incomes" divides the society...
...Nor will the middle class escape unscathed...
...Of course I did...
...They've told us plenty of times...
...If that is so, why do it...
...In other words, most of the poor will be poorer...
...As Pogo might have said, conventional economics has met the enemy and they is us...
...is something desirable in and of itself...
...They've been fighting inflation, although they've never made clear exactly what inflation is...
...To attract and hold deposits they had to compete with Treasury billspaying as much as 16.3 per cent, while the Federal Reserve set a rate of up to 19.1 per cent on interbank loans...
...Evidently inflation is not an increase in the price of energy (a.k.a...
...Greenspan expressed regret that the Federal Reserve Board lacked the power to contribute to the solution of the problem...
...Conventional economists may sneer at Mr...
...Since March 25,1997, everyone with an outstanding variable rate loan and anyone taking out a new loan to buy a house, a car, a refrigerator, a loveseat, or a college education has been paying more...
...As for the poor, they have done nothing to deserve the refusal of raises they might have had, or the denial of jobs that might have been created, or the downsizing from jobs they once had...
...He has done a bit to open up the Federal Reserve Board to public scrutiny, but often it seems he can't make a straightforward declarative statement...
...Did I say "most bankers...
...The answer to that question is clear...
...Whether it truly lacks that power is surely debatable...
...Later in his testimony Mr...
...Increases in the interest rate thus push up prices...
...Hundreds of S&Ls were wiped out (see "Who Killed the Savings and Loans...
...Who else can that be but people with money to lend, that is, people with more money than they need for daily expenses of living...
...that 5 per cent or 5.5 per cent or whatever numbers we're dealing with...
...What is beyond debate is that the Federal Reserve Board can make the problem worse...
...at low interest rates...
...And will anyone be richer...
...not necessarily fewer than are sold today, but certainly fewer than might have been sold tomorrow...
...the Federal debt...
...And most of them will be richer...
...Borrowers resisted the rates that banks had to charge and cut their borrowing to the bone...
...The income gap will continue to widen as long as the new rate is in effect, and it will widen even further if, as expected, the Reserve increases the rate again and again during the coming months...
...I'd list this as a crucial issue...
...When the interest rate is raised, someone benefits...
...NL, September 3, 1990), and many regular banks failed...
...Why did they do it...
...They've been fighting inflation, although they now say inflation never was as high as reported...
...A more valid complaint is that he doesn't act on them...
...What's the major threat to our society...
...The Dismal Science WHY I WANT TO SHAKE ALAN GREENSPAN By George P. Brockway In Congressional testimony, Chairman Alan P. Greenspan of the Federal Reserve Board has talked, in his gnomic way, about the rich getting richer and the poor getting poorer...
...the automobile business and its ancillaries, the building industry and its suppliers from producers of carpet tacks to manufacturers of major appliances, all sorts of retail concerns and their customers, managers of mutual funds and their investors, most bankers, and governmental entities at all levels as they struggle to balance their budgets...
...They have not denied themselves more pleasures to finance the activities of the rest of us, and they will not be required, or even requested, to do anything...
...Responding to a Congressman's question, he testified: "There has been a regrettable dispersion of incomes that goes back to the later '60s...
...the intended malign consequences...
...There is no "if" about this proposition...
...oil) or an increase in the price of food, because economists have now concluded that these prices are controlled by foreigners or the weather or both...
...The Federal Reserve Board has singlehandedly effected all these increased dispersions in income...
...But interest is also a cost of doing business and a factor in prices...
...Inflation is some prices going up faster than others...
...The intention is to hurt...
...Whether or not there may be some democracies of which he is not aware, the dispersion is certainly not good for a democracy that was conceived in liberty and dedicated to the proposition that all men are created equal...
...They were fighting inflation...
...Nor has the middle class done anything to deserve having part of their wealth and income taken away from them...
...For convenience, let's say the middle class consists of all people who are constantly making mortgage payments or payments on their automobile or payments on educational loans or payments on their furniture or on their credit cards...
...They were fighting inflation when they caused recessions in 1954, 1958, 1961,1970,1975,1980,1982, and 1991...
...Greenspan himself, in answer to a question once posed about the natural rate of unemployment, said, "I don't believe that any particular unemployment rate...
...For they in fact did so as recently as March 25,1997...
...They're like the government: They pay their bills, and their credit is good, but they don't balance their budgets...
...Greenspan for voicing such unconventional ideas...
...There is little doubt that an increase in these prices would eventually result in increases in some manufactured products, in some of what used to be called dry goods, and in some services...
...In the conventional lexicon, the only really bad prices are the incomes of the middle class and the poor...
...Now, it is obvious to everyone except (perhaps) the Federal Reserve Board that if raising the interest rate does in fact contain or pre-empt inflation, it does so at the expense of the workers and the wouldbe workers of America...
...And since fewer people will be employed, those lucky enough to have jobs will hesitate to ask for raises and so also will have less money with which to demand goods and services...
...Greenspan calls the dispersion of incomes...
...The expectation is that inflation will be contained or pre-emptively struck, depending on the metaphor you're using this week, and that the rest of us will be free to choose among moderately priced commodities...
...Evidently inflation is not an increase in the multimillion-dollar salaries of executives, entertainers and professional athletes, because such incentives are said to be needed to bring out the best in lethargic souls...
...Evidently inflation is not an increase in profits, because profits are what it's all about...
...and since ordinary business requires making contracts at fixed prices, they never could all go up together...
...Since fewer people will be employed, fewer people will have money with which to "demand" goods and services...
...Responding to a suggestion that interest rates had to be high to attract foreign bond buyers, he has also said, "I'm not aware that we've had very many difficulties selling the debt...
...After all, the middle class and the poor do most of the work of the world, and wages are certainly a cost of doing business and thus a factor in prices...
...We may call these people rich...
...The alleged need is to hurt enough to force people to buy less, to consume less, to enjoy less...
...Anyone lending after that date is correspondingly enriched...
...and it's being given, not to the government for the presumed good of all, nor to some charity of their choice, but to the rich merely because they are rich...
...in some cases thousands of dollars more...
...Bernard Shaw's Undeserving Poor are surely still with us, and some of them are doubtless unemployable, but the malign consequences...
...Because of the quarter-point increase in the interest rate, the total annual incomes of the richest 5 per cent of the population will be increased by several billion dollars, and the total annual incomes of the other 95 per cent will be decreased by several billion dollars...
...deliberately...
...We've known that since Aristotle...
...Anyhow, the question before us is not whether it hurts, but whether it increases what Mr...
...Their increased interest income is an outright gift from their fellow citizens, from the nation's businesses, and from the Federal, state and local governments and school districts...
...Yes, most of the lending is done by banks and such, but these institutions are owned by people who are not poor...
...Conventional economists would of course scream that high interest rates are necessary to enforce a "natural rate of unemployment," and that the Treasury couldn't sell its bonds if the rate were reduced to what was common only 40 or 50 years ago (before the dispersion of incomes began...
...These people will be hurt, some more than others, by the increase in interest rates, and the rich will be made richer at their expense...
...Moreover, since the rich are so few, they will, on average, grow richer almost 20 times as fast as their average fellow citizen becomes poorer...
...So what is left...
...The usurious rates of the '70s and '80s taught them a lesson...
...Since fewer goods and services will be sold, fewer will be supplied, and fewer people will be employed in supplying them...
...However large or small the part may be, it is, as the politicians say, their money...
...If Mr...
...By raising the interest rate, the Reserve slowed the economy down...
Vol. 80 • May 1997 • No. 8
