Despite my radical transformation from larval stage human being to majestic progressive butterfly, there is one thing the `old' Jim and the `new' Jim have in common. We both hated Alan Greenspan consistently. I know of no figure in history who has received more undeserved credit than good `ol Uncle Al.
As we all know, Alan Greenspan is the chairman of the Federal Reserve Board. It's the board's job to oversee the Federal Reserve Banks, and to establish monetary policy. The Fed is supposed to use this authority to help monitor and to a certain extent control the economic health of the country.
Unfortunately for all of us, Alan doesn't see this as his job. Alan thinks it's his job to control inflation at all costs, even when there isn't any. Like a doctor whose not afraid to kill the patient if it means getting rid of the patient's cancer. He also seems to have anointed himself `King Market Pimp,' and he's not afraid to show his strong `pimp hand' whenever the market gets out of line. Hmm...a combination doctor/pimp...
So `Dr. Detroit' Alan Greenspan is famous for coining the phrase `Irrational Exuberance' when describing the late 90s stock market. And for many people this is what made him brilliant. He foresaw the `Great Internet Bubble,' and he tried to warn us. But we lowly peasants were too blinded by our Clinton-inspired greed to hear the warnings. What more proof do we mere mortals need of this man's brilliance?
Good question. Glad you asked. `Cuz, see, it would be impressive if Alan used that term to describe the stock market in January of 2000 (the high point for the Dow Jones Industrial Average). Hell, I'd have even been impressed if he used it to describe the market in September of 1998 (the lowest point of the 2002 market which intersected the `Irrational 90's' market--sort of a trough-to-trough measurement). But `The Doc' used the phrase during an address to the American Enterprise Institute on December 5th, 1996. Here's his exact quote.
"But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" He added that "We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability."
Let me put that in perspective. On December 5, 1996 the S&P 500 closed at 744.38. On December 5, 1999 it closed at 1433.30, almost doubling in three years. Finally, on December 5, 2004 the S&P closed at 1,191.17, still 60% higher than when he first asked the question. Saying the market is exhibiting signs of `irrational exuberance' at a time when history has shown it was doing no such thing is hardly worth using as justification for calling someone a genius. Of course the market was going to go down eventually! That's what markets do! In fact, if you follow the link above you'll see Alan originally used the term `over-exuberance' in 1959! This guys a regular Nostradamus. It would be like me rubbing my temples, humming, and saying "One day...George Bush won't be President...", and then in four years having everyone say "Man...that Advisorjim's a GENIUS! He knew Bush would be leaving office!"
I think this quote speaks volumes about how Alan looks at his job, and it's quite conservative if you think about it. If Alan felt like inflation was getting out of control (which it hasn't in almost 30 years), he'd exercise monetary policy to affect, not industry, but the market itself! Instead of using open-market operations or reserve requirement to control the money supply, which have a softer effect on businesses, Alan would change the lending rate (technically called the `discount rate'). That makes it almost immediately more expensive for companies to borrow money. That in turn causes companies to slow the business cycle, like putting off expansion until next year. Next year comes along and Alan raises the rate again, so companies put off another expansion project. Finally Alan raises the rate to a punitive level, and thousands of small businesses have to close shop.
Not in that bullshit way Republican business owners talk about, either. "If my taxes go up, I'll can your ass!" That's a good approach to use for all employees hired after the tax cut, but if you could afford those people before the tax cut, why couldn't you afford them after? Unless you're just being a complete asshole. Another diary, another day.
No, this caused a lot of businesses, especially small businesses a great deal of hardship. I know because at the time my dad owned one such business. I give my dad a lot of crap for his social conservatism, but I have never met a better businessman in my life. He's like a walking spreadsheet. Numbers just come to him, and in the business world he's been successful at everything he's done. That's one area where I do try to emulate him.
I remember at the time we both hated Greenspan because every 1% move in the interest rate cost him $100,000 from his bottom line. And we're not talking about a tremendously large business here.$25-30 million in sales/year. That's a pretty big meatball hanging over the books! Kind of hard to build that new shop in Dyersburg, TN when your cash flow could be plus or minus 100 grand. He weathered the storm, and ultimately made good money selling the business, but Greenspan really did a number on him.
My dad's company wasn't alone. Every company gets whacked when the discount rate changes. That's why it has an almost immediate effect on the stock market, which is precisely what Greenspan was counting on. He was deliberately using changes in the stock market to regulate what businesses did. That's not his job. His job is to regulate monetary policy to create a healthy business environment. Changes to the stock market should be incidental. He doesn't see it that way. He seems to think he can use the stock market to regulate business, so he limits his monetary policy to that which has the maximum affect on the stock market.
And there can really be no higher example of the conservative ideal. If `abortion' is the issue, don't try to create a healthy and financially stable world for the mother and her child--ban abortion! Don't offer treatment to drug addicts, or attempt to rehabilitate them using tax dollars so they can be productive members of society--outlaw drugs! Throw `em in jail! There's no drugs in jail! Want to reign in the economy? Don't use monetary policy to encourage businesses to take a breather--wreck the stock market! Create an environment where CEOs can operate in a moral vacuum and do whatever it takes to get the stock price back up! That'll help the economy!
That's just one issue where he's missed the mark. This doesn't even address the `flip-flop' from "don't pay down the debt so fast," to "that's too much debt! Quit it!" Alan Greenspan is the quintessential `fool in the shower,' and the fact that I've hated him as both a Republican and a Democrat only serves to show how bad the guy really is.
...In my opinion, of course...