> -----Original Message-----
> From: owner-lbo-talk at lists.panix.com
> [mailto:owner-lbo-talk at lists.panix.com]On Behalf Of Doug Henwood
> Sent: Friday, August 27, 1999 9:11 PM
> To: lbo-talk at lists.panix.com
> Subject: wheeeee!
> Wall Street Journal - August 27, 1999
> WHAT'S MORE IMPORTANT THAN THE FED?
> By Lawrence Kudlow, chief economist at Schroder & Co. and at
> CNBC.com, and author of "American Abundance: The New Economic and
> Moral Prosperity" (Forbes, 1998).
> Now that the Federal Open Markets Committee has raised interest rates
> for what we hope will be the last time this year, it's time to stop
> obsessing about Fed policy and turn to what's really important in
> today's economy. Thanks to a combination of positive developments,
> including the far-reaching impact of the Internet, the long bull
> market cycle of prosperity is alive and well, regardless of what the
> Fed does.
> Consider all the good news: Treasury bond rates have peaked. Consumer
> price inflation is running at only 1.7% annually year-to-date,
> excluding the temporary oil shock. This is considerably less than
> last year's 2.4% pace. Technology investment is growing at a
> phenomenal 40% annual pace, expanding the economy's long-run
> potential. Using this technology, worker productivity is increasing
> 5% a year in the factory sector, 4.5% in nonfinancial corporate
> America and 3.5% for overall nonfarm business--faster on the whole
> than the 3.5% to 4% rise in wages and salaries.
> Business profits through midyear have risen 16.5% from 1998,
> including a 44% gain for computers and software, 41% in durable
> goods, 38% in telecommunications, 30% for retailers, 15% for
> financial services and 12% for capital goods and health care. This
> explains yearly stock market gains of 31% for the Dow Jones
> Industrial Average, 26% for the Standard & Poor's 500 and 57% for the
> Industrial production has risen 3.6% in the past year, while
> factories' capacity to produce is growing at a 4.1% rate. So the
> supply side of the economy is expanding rapidly, leaving plenty of
> room for future growth without straining resources.
> Why all the good news? Because the Internet is more important than
> the Fed. Easily accessible, low-cost information and increased
> competition, the hallmarks of Internet economics, will contribute
> substantially more growth with significantly lower prices. Over the
> past year computer production has increased 41.5%, while computer
> prices have fallen 30%. Think of it as deflationary growth, a classic
> consequence of long-wave technology cycles.
> Record-breaking venture capital investment is nurturing Internet
> innovation and high technology in general. PricewaterhouseCoopers
> reports that venture-backed investments in this year's second quarter
> hit a record $7.7 billion, a 104% rise over last year.
> Internet-related company financing quadrupled, to $3.8 billion. The
> number of companies receiving funds more than doubled, to 412 from
> 174. Investments in this year's second quarter exceeded the total for
> all of 1998.
> Venture capital is the lifeblood of the new economy. New ventures
> require seed capital in order to be commercialized and then brought
> to the mass market. These record venture-capital flows, undoubtedly
> bolstered by the recent decline in the federal tax rate on capital
> gains, point toward even faster technological innovation in the next
> Now back to the Fed. Regrettably, Alan Greenspan & Co. continue to
> stray off the price rule. Instead, they have wandered into the
> historical back alley of Malthusian limits to growth and employment.
> This old-economy thinking, epitomized by the discredited Phillips
> curve trade-off between inflation and unemployment, reflects the
> tired wisdom of the economics establishment. Promoting the
> incongruous policy prescription of higher interest rates and paydowns
> of the federal debt, the Fed has even abandoned the original
> Keynesian first principle of growth.
> Growth is the intellectual dividing line in American politics. Free
> market supply-siders embrace it; it makes orthodox economists
> nervous. Slumps born of austerity policies open the door for economic
> planners and bigger government influence. Prosperity from
> free-enterprise growth has no need for government targets and
> controls. The market itself is the most effective regulator of
> In monetary policy, market prices are the most efficient regulators
> of the supply and demand for money. With gold low and the dollar
> index high, it is clear that the volume of money provided by the Fed
> is just about right. There is no need to withdraw liquidity or
> attempt to fine-tune the economy's growth rate. Today's growth is
> real, not inflationary.
> If the economic establishment continues to press austerity and
> pessimism, it will be confronted by a tidal wave of opposition from
> the shareholders, farmers, seniors, homeowners, Web site operators,
> venture capitalists, small-business men and others who make up the
> new investor class. These asset owners know that markets, not
> governments, create wealth. They will not permit new tax, monetary,
> trade and regulatory obstacles to impede free enterprise. They know
> that entrepreneurship spells opportunity.
> Think of the Internet as an economic-freedom metaphor for our time.
> The Internet empowers ordinary people and disempowers government. The
> Internet creates wealth, expands growth, produces jobs and spreads
> prosperity. Standing behind the Net is the political power of well
> over 100 million investors and asset owners.
> Because of this, I believe the future economy will outperform all
> expectations. The Dow Jones Industrial Average will reach 15000, then
> 30000, then 50000 and higher. Believe it or not, the Internet is more
> important than the Fed.