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JUST WHAT'S SO GREAT ABOUT GREENSPAN?
>From Mr Doug Henwood.
Sir,
Your editorial on whether the chair of the Federal Reserve deserves a fourth term ("A successor to Mr Greenspan", May 24) is suffused with the usual hagiographical boilerplate: "golden reputation", "superb record" and so on. Such statements have reached that status where their mere citation is enough to make the case, the need for evidence having been assumed away long ago.
But what exactly has Mr Greenspan done to earn this reputation? Shortly after he ascended to his throne, there was a stock market crash, caused in part by his mettle-proving tightening. Yes, he reacted to that crisis with soothing words and liquidity injections - but that bail-out gave the US leveraging mania a new lease on life, leading to the exuberant terminal climaxes of the thrift industry and the leveraged buy-out madness.
Mr Greenspan, of course, did nothing to resist this despoliation of the national balance sheet, which left a hangover it took years to recover from. To hasten that recovery, Mr Greenspan had to push US interest rates to very low levels and keep them there, a regimen that finally revived the real economy around 1993, but which also helped give birth to one of the most extravagant bull markets of all time. And while that bubble has been inflating, we've had the Mexican crisis of 1994-95 (partly caused by his excessive tightening in 1994) and the Asian crisis of 1997-98 (partly caused by the Mexican bailout he helped engineer).
And during his term in office, US net foreign debts have increased by $2,400bn, a development that almost no one pays attention to in this era of American triumphalism. That massive capital inflow is the dirty little secret of the Clinton boom, the fortunate by-product of the wreckage of a good bit of the outside world's economy.
If this is a superb record, what would a bad one be?
Doug Henwood, Left Business Observer, 250 W 85 St, New York NY 10024, US
[Textual note: the following sentence was originally the second sentence of the second paragraph, but it was edited out: "Let's leave aside his prehistory as a mediocre economic forecaster, Ayn Rand protege, Republican party hack, and (paid) character witness for S&L felon Charles Keating."]