Conduct of Monetary Policy Committee on Banking and Financial Services House of Representatives, February 24, 1999
"It is difficult to judge whether these significant shifts in the market environment in which firms function is sufficient to account for our benign overall price behavior during the past half decade. Undoubtedly, other factors have been at work as well, including those temporary factors I mentioned earlier and some more lasting I have not discussed, such as worldwide deregulation and privatization, and the freeing up of resources previously employed to produce military products that was brought about by the end of the cold war." (Emphasis added)
Questions from Cong. Barney Frank (D-MA):
Mr. FRANK. The one substantive point I had is, on page 13, I was pleased to note the following, because this is relevant. You say, talking about shifts in the market environment which have accounted for the lack of inflation, the benign overall price behavior, and you say, "Undoubtedly, other factors have been at work," including the temporary factors, oil prices and other drops, and then, "some more lasting, such as worldwide deregulation and privatization," and this I think is particularly relevant to us today, "and the freeing up of resources previously employed to produce military products that was brought about by the end of the Cold War."
Now I cite that because, obviously, we have a dispute about what amount of military spending we need from a national security standpoint. But in every debate I have been in on military spending in the 19 years I have been here, there were those who argue that we shouldn't cut military spending because it would be bad economically. Indeed, we have some people who are very occasional Keynesians. When military spending comes up, they become very much in favor of the stimulative effects of government spending.
I take it what you are saying is that dollar for dollar, military products, as you previously said here, have no end use, but are there as insurance--I think that is an analogy that you have used before--and to the extent you could put those same dollars into other areas, maybe education and job training, maybe into transportation, you are dollar for dollar likely to have a better economic effect, and in fact it is less inflationary. Is that an accurate reference to what you are saying here?
Mr. GREENSPAN. Yes it is, Mr. Frank. Incidentally, I was referring not only to the United States but the whole Soviet Union and all other related--
Mr. FRANK. I appreciate that. Because as my former colleague, Mr. Kennedy, used to, you may remember when we did international financial institutions, argue that one of the things we ought to be urging on developing nations was a reduction in their military budgets, because it was an unproductive use of their resources. So I take the point as one of general application. But that is an accurate statement?
Mr. GREENSPAN. It is, indeed.
Mr. FRANK. To the extent that you can reduce military spending, consistent with your security needs, that is going to have a good economic effect?
Mr. GREENSPAN. Yes