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Alan Greenspan
Not a Deity

Is Alan Greenspan the greatest thing since the invention of the remote control, Woodstock or even the birth of the Super Bowl?

Pundits and politicians seem to think so, giving the chairman of the Federal Reserve Board credit for the nation’s longest-ever peacetime economic expansion. President Bill Clinton gleefully nominated the 73-year-old economist to another term as Fed chairman. As the UE NEWS went to press, the Senate was expected to confirm that nomination.

Greenspan is arguably the nation’s most powerful unelected civilian public official. The choices the chairman of the Federal Reserve Board makes can accelerate or brake the economy. Popular with corporate and financial CEOs, Greenspan was first appointed by Ronald Reagan and reappointed unfailingly by Presidents Bush and Clinton.

Assuming that Greenspan is actually responsible for the present state of the economy, does he deserve another term in charge of the direction of the U.S. economy? The answer to that question probably depends on how you’re faring during the current boom.

As the news media are quick to remind us, unemployment and inflation are low, the stock market is performing remarkably well, corporate profits are high and even workers’ wages are slowly beginning to rise.


But it hasn’t been the best of booms, or the easiest of times, for many working Americans.

"The 1990s rise in stock prices has been driven by a rapid increase in corporate profits," points out the Economic Policy Institute (EPI) in a report Is the Booming Stock Market a Bust for Workers? "The rise in profits is due, in part, to the squeeze on workers’ wages, laying off large numbers of employees through downsizing, and reducing long-term investments."

Since most working Americans own little or no stock, they have not enjoyed the benefits of the stock-market boom. Instead, "the net wealth of the typical U.S. household has actually fallen in the 1990s," writes John Schmitt of EPI. Schmitt points out that stagnating or falling real estate values and the growth of household debt have had a bigger — and negative impact — on the average household’s net wealth.

"The truth is that the United States economy today is creating wealth. The problem is that most of that wealth is going to the people at the top who need it the least, not to the middle class and working families who need it the most," argues U.S. Rep. Bernie Sanders. Vermont’s Independent Congressman points out that the richest 1 percent of the population now own as much wealth as the bottom 95 percent of all Americans combined.

"Today, millions of Americans are working longer hours for lower wages than was the case 25 years ago," Sanders says. "In 1973, the real (inflation adjusted) hourly earnings for production and non-supervisory workers averaged $14.09. By 1998, that wage had fallen to $12.77. Even more alarming is that young entry-level workers without a college education saw their real wage fall by more than 20 percent between 1979 and 1997."


Sanders has proposed raising the minimum wage to a living wage, arguing that the federal minimum needs to be $7.33 an hour to have the same purchasing power it had in 1968. Chairman Greenspan, on the other hand, is dead-set against any increase in the minimum wage.

Greenspan believes that unskilled workers will not be hired at wages at the level set by law — although he admits that in the present labor market the 1996 increase to $5.15 had little impact on employment.

It’s apparently better, in his view, for the poor to be exploited at whatever meager wage the "market" permits. "I do not consider the minimum wage as a positive force in our society," Greenspan intoned in a Capitol Hill exchange with Sanders.


Chairman Greenspan is no fan of low unemployment. Instead, it seems to make him positively nervous. And that’s because he sees rising wage levels as the greatest threat to the economy. Low unemployment enhances workers’ bargaining power. Recent Federal Reserve moves to increase interest rates have been aimed at throttling any real improvement in workers’ paychecks.

"He is prone to throw a scare into the markets, the banking community and the citizenry, and he does this too often because he is overly concerned with something called unit labor costs," observes political economist Gerald Houseman, writing in the Fort Wayne Journal-Gazette.

"The truth is," says Houseman, "that low unemployment is the first and best sign of a healthy economy. It gives a big push to consumer spending, and it increases the bargaining power of the working class, which can be seen at the moment with the various unheard-of incentives companies are finding to lure or keep their employees," the economist says. "It increases the leverage of labor unions."

Houseman, who teaches at Indiana University, thinks it’s time for Greenspan to go, for these and other reasons.


Greenspan isn’t always right. His handling of interest rates contributed to the double-digit recession in 1992 that sunk George Bush’s re-election hopes. Other, smaller dips since 1988 that were hardly "boom" times. In the near future, the Fed chairman’s tight money policy could lead to a slowing economy, Houseman suggests.

Once again, Greenspan is afraid the economy is growing too quickly.

If a recession is a possibility, it’s because the Fed doubled interest rates in response to the non-existent threat of inflation, warns another Greenspan critic. James K. Galbraith of the Lyndon B. Johnson School of Public Affairs at the University of Texas says, "A bias toward high interest rates and high unemployment is part of Mr. Greenspan’s personal, political and ideological fabric." The Fed chairman is a philosophically extreme conservative whose "entire professional life has been devoted to the service of the rich," Galbraith says, writing in the Texas Observer.


For example, Greenspan hired himself out to Charles Keating of the Lincoln Savings and Loan Association, Galbraith points out. At Keating’s behest, Greenspan wrote a letter to the Federal Home Loan Bank, asserting that Keating presented no risk and instead represented "seasoned and expert" new management. Lincoln was at the heart of a massive fraud that triggered the Savings and Loan crisis; Lincoln alone cost American taxpayers more than $3 billion — and earned Keating a felony conviction.

And maybe Greenspan isn’t the driving force between the current boom after all. Spectacular growth in productivity has propelled economic expansion without growth in inflation. "The phenomenal changes in the character of the economy are the real factors that go to the heart of this expansion," Houseman says. "Technological innovation has crested in one of those rare eras in which productivity gains can be scored in a sensational fashion."

UE News - 02/00

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