The standard claim that occasional "pre-emptive strikes" kept this long-running expansion going ignores all that was lost--the huge volume in output and income that would have helped achieve a more widely shared prosperity (leave aside the obvious political injustice of rewarding one class of citizens while injuring others). Greenspan was indulging in the very sin that conservatives used to attribute to liberal economic managers--attempting to fine-tune the economy according to abstract theory that did not match the realities. Dean Baker of the Center for Economic and Policy Research has estimated that an additional $1 trillion in economic output has been gained since the Fed backed off its rigid limits on wages and employment--ten times more economic benefit than the supposed gains claimed for deficit reduction. Economist L. Randall Wray of the University of Missouri, Kansas City, goes further: "If the Fed had simply left the economy alone for the past six years, I believe overall economic performance would have been better, but Greenspan's chances at sainthood would have been severely reduced."

The dramatic turning point in Woodward's narrative comes down to this: Greenspan changed his mind. This story has been told before, and it fits splendidly with the mystique of central banking: the soulful commitment to rigorous, disinterested intellectual inquiry. The chairman patiently noodles around in the data over several years, convinced something doesn't add up, and discovers the key--productivity is actually rising rapidly, thanks to heavy business investment in the new technologies of the Information Age, though not yet reflected in the government's data. Hurrah, there it is--the New Economy, computers and such. These efficiency-promoting tools, he decides, are invalidating the Fed's ceilings on growth--so he can stand back and let 'er rip. Greenspan has to persuade skeptical colleagues inside the Fed not to insist on further rate hikes, but when he succeeds, the boom is born. This makes a nice, uplifting story. But is it true?

Let me offer an alternative version of what may have occurred, based on informed supposition, not insider information. Greenspan, I think, was shrewd enough to understand that like it or not, the Federal Reserve had no choice but to back off. Because if it persisted in following its own stern dictates for curbing growth, the Fed might very well drive the economy over the cliff into a full-blown price deflation--falling prices. That would swiftly put many sectors under water, not to mention millions of debt-burdened families. The real value of debts increases ferociously in that situation while wage incomes fall because of rising joblessness. The intellectual detective work was doubtless genuine, but he was searching for a way out of the trap the Fed had constructed for itself. The 2 by 2 logic that he had applied for years was now dangerously successful, with a chance event threatening to push price levels below zero. He was flirting with a catastrophe far worse than any inflation.

In other words, the turning point that Woodward and others have lovingly described was, in fact, an inevitability that Greenspan could not escape. If he didn't change policy and relent, he was going to commit a monumental error--the kind of mistake that would put him in the history books not as saint but as blind fool. The chairman needed to find an acceptable rationale for relaxing the Fed's restraint--one that did not require him to trash orthodox principles. Miracle of miracles, he hit upon the talisman of productivity, and it's good that he did. But the motivation, I suggest, included a strong dose of old-fashioned fear.

The heroic version of Greenspan's brilliant discovery is already quite tattered. A growing circle of economists and other critics has been punching holes in his analysis--the supposed productivity miracle created by New Economy hardware--and they started well before tech stocks swooned. John Cassidy in the November 27 New Yorker gave a lucid tour of the statistical jokers in Greenspan's deck. He pointed out that if Germany adopted the same dubious accounting methods the United States started using in the 1990s, it could claim a productivity miracle too. Others note that the miracle may belong to Asia and other foreign producers, since computers and components are largely manufactured abroad.

In truth, productivity is a kind of "black box" in economic thought--a measure with manifold meanings that can be invoked to scold the work force or to claim a company's improved efficiencies. In practice, the gains can be achieved just as readily by suppressing labor costs--less spent for workers' input means greater productivity in the output. The investment boom was real, but the labor factor--getting more from workers without paying them for it--is centrally implicated in the miracle Greenspan attributes to technological innovation. For instance, economist David Friedman, senior fellow at the New America Foundation, cites a Fed study showing that the use of temp workers doubled in manufacturing during the 1990s. The practice of mandatory overtime is now commonplace, since it's much cheaper than hiring additional workers. Corporate restructuring dumped boatloads of expensive white-collar employees.

If the rise in productivity is real, it was accomplished at the expense of the work force. In conventional economic theory, workers are supposed to gain wage increases in step with employers' rising productivity (and only then are they supposed to expect it). But wage earners have not been rewarded. Their increases remained quite modest, even tepid, during this boom--sustaining long-term inequity, further widening income inequalities. While manufacturing productivity has been growing at 5 percent a year or more, real wage growth has averaged only 0.3 percent, according to Friedman. This gap between rising wages and rising productivity is now the widest in forty years, he observed. Anyway, since Greenspan began slowing things, trying to restore his 2 by 2 economy, the growth in real wages has stopped. The boom was already over last spring for many folks, and if they haven't paid off their credit cards, they are headed for trouble.

The subject cries out for critical public argument: Was productivity boosted by New Economy innovations, or was it mainly extracted from the work force--the practice that in the olden days, before computers, was described as "sweating" it out of the workers? This is not an esoteric matter for scholars alone but a pivotal political question for establishing a different economic policy direction. When the boom is over, should government keep on favoring capital or start supporting the wage earners? If this country had an alert, focused political party (alas, it doesn't), it would launch its own spirited examination. At least it wouldn't leave the inquiry to the Fed, which is anything but disinterested in protecting its own reputation. Last July I got a phone call from Bob Woodward, who said he was at work on a book about Greenspan and asked what I thought of him. Bob seemed startled to learn I was not on board for the celebration.

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