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While most of the media focused, with good reason, on the huge increase in military spending and dramatic cuts in domestic programs in President Bush's $2.1 trillion budget proposal for 2003, a fe

An awakened sense of outrage has reporters and members of Congress playing a fierce game of hounds and hares with Enron executives and other bandits, which is most fortunate for Alan Greenspan. If the Federal Reserve were not treated with such deferential sanctimony, its chairman would also face browbeating questions concerning his role in unhinging the lately departed prosperity. Newly available evidence supports an accusation of gross duplicity and monumental error in the ways that Greenspan first permitted the stock market's illusions to develop into an out-of-control price bubble and then clumsily covered his mistake by whacking the entire economy. These offenses are not as sexy as criminal fraud but had more devastating consequences for the country.

The supporting evidence is found in newly released transcripts of the private policy deliberations of the Federal Open Market Committee (FOMC) back in 1996--the fateful season when the froth of asset-price inflation was already visible in the stock market. In a series of exchanges, one Fed governor, Lawrence Lindsey (now the President's chief economic adviser), described with prescient accuracy a dangerous condition that was developing and urged Greenspan to act. Greenspan agreed with his diagnosis, but demurred. If Greenspan had acted on Lindsey's observations, the last half of the nineties might have been different--a less giddy explosion of stock market prices without the horrendous financial losses and economic dislocations that are still unwinding.

Lindsey described back in 1996 a "gambler's curse" of excessive optimism that was already displacing rational valuations on Wall Street. The investment boom in high-tech companies and the rising stock prices were feeding off each other's inflated expectations, he explained, and investors embraced the improbable notion that earnings growth of 11.5 percent per year would continue indefinitely. "Readers of this transcript five years from now can check this fearless prediction: profits will fall short of this expectation," Lindsey said. Boy, was he right. The Federal Reserve has the power to cool off such a price inflation by imposing higher margin requirements on stock investors, who borrow from their brokers to buy more shares. That is what Lindsey recommended.

"As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst the bubble becomes overwhelming," he told his Fed colleagues. Acting pre-emptively is crucial; if the regulators wait too long, any remedial measure may be destabilizing. "I think it is far better to do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights," Lindsey warned.

Greenspan lacked the nerve (or the wisdom) to follow this advice. The chairman did make a celebrated speech in December 1996 observing the danger of "irrational exuberance" in the stock market, but he did nothing to interfere with it. In the privacy of the FOMC, the chairman agreed with Lindsey's diagnosis. "I recognize that there is a stock-market bubble problem at this point [the fall of 1996], and I agree with Governor Lindsey that this is a problem we should keep an eye on," Greenspan said. Raising the margin requirements on stock market lending would correct it, he agreed, but he worried about the impact on financial markets. "I guarantee that if you want to get rid of the bubble, whatever it is, that will do it," Greenspan said. "My concern is that I am not sure what else it will do."

In hindsight it's clear the Federal Reserve chairman got it wrong. But his private remarks in 1996 also reveal flagrant duplicity. As the market bubble grew more extreme and many called for action by the Fed, Greenspan repeatedly dismissed criticism by explaining that raising the margin requirements would have no effect. In testimony before the Senate Banking Committee in January 2000, Greenspan said that "the reason over the years that we have been reluctant to use the margin authorities which we currently have is that all of the studies have suggested that the level of stock prices have nothing to do with margin requirements."

By 1999 the stock market was in the full flush of the gambler's curse--remember Dow 36,000?--and at that point Greenspan finally did act. But instead of tightening credit for stock investors, Greenspan proceeded to tighten credit for the entire economy, steadily raising interest rates in 1999 and 2000 until the long-running expansion expired. So did the stock market bubble (although stock prices remain very high by historical standards). Greenspan has always denied that this action was designed to target the bubble, but Bob Woodward, who wrote an admiring account of Greenspan's years at the Fed, reported that the "Maestro" was stealthily deflating the bubble by slowing the economy. Greenspan got that wrong too, since a recession resulted.

Millions of Americans are now paying the price, either as hapless investors or unemployed workers. The democratic scandal is that public officials are supposed to be held accountable for their actions, including human error. Accountability is impossible when the Fed chairman is allowed to make policy decisions in closed meetings and keep his true opinions secret for five years. The FOMC's verbatim meeting minutes should be shared with the citizens who will be affected and made available for timely political debate. When reformers get finished with the funny-money accounting at Enron, they might turn their attention to some holy illusions surrounding the Federal Reserve.

A report from Porto Alegre on the "antiglobalization" movement.

As January turned into February, the most important people in the world gathered themselves together in midtown Manhattan for the annual World Economic Forum. Normally held in Davos--the Swiss ski resort previously famous for being the site of Thomas Mann's The Magic Mountain--the meeting was shifted to New York this year as an act of solidarity with a city wounded on September 11.

Healing, though, wasn't much in evidence. To protect the 3,000 delegates--businesspeople, academics, journalists and random celebrities--the area around the Waldorf-Astoria was sealed off with metal fences, dump trucks filled with sand and 4,000 members of the NYPD. Of course, the intention was to keep out the thousands of activists who'd come to protest them, not to mention terrorists who might dream of taking out a good chunk of the global elite in one deadly action.

Thankfully, no mad bombers showed up. And though the protesters were kept well away from what was dubbed the Walled-Off-Astoria, their influence was nonetheless clearly felt. One attendee, Bill Gates, the richest person on earth, actually welcomed them, saying: "It's a healthy thing there are demonstrators in the streets. We need a discussion about whether the rich world is giving back what it should in the developing world. I think there is a legitimate question whether we are."

That Gates said something like that--leaving aside for a moment just what it means--is one sign of how the political environment has changed over the past few years. Another is the evolution of the WEF itself. The forum was founded in 1971 by Klaus Schwab, a Swiss professor of business, policy entrepreneur and social climber. At first it was a quiet and mostly European affair, with executives and a few intellectuals discussing the challenges of what was not yet called "globalization." But it grew over time, gaining visitors from North America and Asia, and by the 1990s had emerged as a de rigueur gathering of a global elite. In fact, it's been one of the ways by which that elite has constituted itself, learning to think, feel and act in common.

Corporate and financial bigwigs--who pay some $25,000 to come--dominate the guest list, but they also invite people who think for them, entertain them and publicize them, for whom the entrance fee is waived. Star academic economists were also on the list of invitees (bizarrely marked "confidential," so I had to swipe a copy), alongside some unexpected names: cultural theorist Homi Bhabha, columnist Arianna Huffington and model Naomi Campbell. And lots of religious figures, NGO officials and union leaders--who, to judge from their press conferences, didn't feel very well listened to. It seems not much communication goes on across the vocational lines; Berkeley economist Brad DeLong, a first-timer, theorized that "one reason that the princes of the corporate and political worlds are where they are is that they are very good at staying quiet when baited by intellectuals."

And DeLong was in the same room with them. Most journalists covering the event weren't so lucky. The WEF designated a handful of clubbable correspondents from places like the New York Times and CNBC as "participating press" and allowed them to mingle with the delegates at the Waldorf. But several hundred others, dubbed "the reporting press," were penned up in a couple of cramped "media centres" in a neighboring hotel. The terms are fascinating. Clearly the participating press participates in the inner workings of power and helps create its mystique. But the reporting press couldn't really report at all: We got to watch some of the sessions on closed-circuit TV (only the big, more formal ones--the intimate brainstorming sessions were strictly private), to read sanitized summaries distributed by the WEF staff and to view a few dignitaries at press conferences, which were generally too short to allow more than a few perfunctory questions.

Not only were we barred from newsworthy events--we weren't even told they were happening. In one of them, Treasury Secretary Paul O'Neill explained bluntly that the Bush Administration let Argentina sink into total crisis rather than engineer a bailout because "they just didn't reform," apparently forgetting that the country was once praised as a model of economic orthodoxy. In another, Colin Powell asserted the right of the United States to go after "evil regimes" as it sees fit--harsh language from the Administration's resident dove. Neither speech went down well with a good bit of the audience; anxiety at Washington's unilateralism was one of the recurrent themes among non-US delegates.

The gathering's mood was clearly troubled. Back in the 1990s, when the US economy was booming, trade barriers were falling and the New Economy was still new, the temper of the gatherings was reportedly pretty giddy. Now, the headlines are full of bad news--Enron, Argentina, recession, terrorism, protest. And the conference reflected it.

Businesspeople and academics mused on how to deal with new risks--you can't hedge against bioterrorism in the futures markets. Economists debated which letter would best describe the US economy--a V (sharp fall followed by a quick recovery), a U with a saggy right tail (long stagnation, weak recovery) or, most appropriate, a W (false recovery followed by a fresh downdraft). The consensus leaned away from the V toward the saggy U, with the W not to be ruled out.

But there were things more profound than the business cycle to worry about. As the Washington Post noted with apparent surprise, "The titles of workshops read like headlines in The Nation: 'Understanding Global Anger,' 'Bridging the Digital Divide' and 'The Politics of Apology.'" Most prominent among those concerned with poverty were the duo of Gates and his new friend Bono, the lead singer of U2. Bono--who identified himself on opening day as a "spoiled-rotten rock star" who loves cake, champagne and the world's poor--hammered at the need for debt relief. (It's easy to make fun of him, but activists are quick to point out that his influence is much to the good.) Gates kept reminding everyone that about 2 billion people live in miserable poverty. Of course, no one was rude enough to point out that Gates's personal fortune alone could retire the debts of about ten African countries.

It's hard to believe this is much more than talk, however. Addressing poverty and exclusion would require WEF attendees to surrender some of their wealth and power, and they're hardly prepared to do that. Stanley Fischer, formerly the second in command at the IMF and now a vice chairman of Citigroup, expressed "profound sympathy" for the people of Argentina but then worried about "political contagion"--the risk that other countries, seeing the crisis there, might reject economic orthodoxy.

Further insight into the WEF mindset was provided by Fischer's panelmate, South African Finance Minister Trevor Manuel. According to Manuel, during the (private) WEF discussions, "poverty was defined...as the absence of access to information," which would be news for anyone struggling to pay the rent. More urgently, he pointed out that "uprisings occur because ordinary people don't feel that they have voice and representation." To ward off that danger, policy-makers must worry about "equity"--which he carefully distinguished from "equality." When I asked him to expand on this distinction, Manuel said, "There are different conceptions of equality to start with. There's equality of opportunity and equality of outcome. But equity is about creating stakeholders. For example, both employers and employees have a stake in good labor practices." When I said that that sounded like it was more about changing perceptions rather than material reality, he said, "It's all those things. It's all those things." Manuel also revealed that the participants had "interesting, interesting debates on whether we should ask business, in the conduct of business, to act ethically or whether it's OK for business to be unethical in the conduct of business and then have some spare cash to do good with." No wonder people pay $25,000 to play this game.

And it's no wonder that on the closing day, a panel of union leaders--five out of some forty who were there, including AFL-CIO president John Sweeney--gave a very downbeat assessment of the forum's dedication to a real adjustment of policy. Sweeney, the most moderate of the group, said that the world economy doesn't have an image problem--its problems are structural. Others spoke of CEOs being "in denial," of hearing but not listening.

Unfortunately, though, there were very few union people--leaders or rank-and-filers--demonstrating in the streets that weekend. That would have made quite an impression on the great and good. But Gates's appreciation of the protesters points to what was doubtless the best thing about this year's forum: The 12,000 who marched through midtown Manhattan on February 2 proved that the so-called antiglobalization movement, a global movement if there ever was one, was not put out of business by September 11. It's alive and well--so alive and well that it set much of the WEF's agenda.

The Texas company has been a scandal in other countries for a long time.

Pôrto Alegre, Brazil--In US living rooms, talk about such policy measures as the White House's proposed Free Trade Area of the Americas (FTAA) is likely to elicit clueless shrugs.

On Saturday, February 2, approximately 12,000 demonstrators gathered in New York City to protest the meeting of the World Economic Forum.

The challenge to global capitalism is more relevant now than before September 11.

Enron's power project in India demonstrates who benefits from globalization.

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