Shortchanging America

From The Nader Letter

April 1996

As coronations go, the confirmation hearings for Federal Reserve Board Chairman Alan Greenspan and two new members of the Board were, if nothing else, a model of efficiency and speed, taking just a little more than three hours of the Senate Banking Committee’s time.

So perfunctory was the Committee’s examination by both Democratic and Republican Members that one might have thought that these were nominees for the Tea Tasting Commission rather than for the Board of Governors of the world’s single most powerful economic agency. Nominees to the U. S. Supreme Court, who frequently undergo weeks and, sometimes months, of inquiries about every utterance of their careers, must feel envious of their Federal Reserve brothers and sisters who are waved so swiftly through the confirmation gates.

But, the cursory nature of the hearings was less troubling than the dismal “no growth” message that all three nominees left with the Senators. Of course, nobody expected a discussion on sustainable growth economics. But, even old-style, externality-laden growth was not on the table.

Listening to the nominees, it was difficult to discern the difference between the views of the two new nominees appointed by a Democratic President and those of Alan Greenspan, the Chairman appointed originally by President Ronald Reagan and renamed to the job by President Bush.

“We’re basically at capacity,” Laurence Meyer, the nominee from Washington University, told the Committee, describing the current potential for growth as “really quite modest.” And Alice Rivlin, who is leaving the job of Budget Director to join the Federal Reserve Board, echoed the sentiment, contending that the current unemployment rate (5.5 percent) is the “fullest employment this economy can sustain.”

These evaluations, which fit neatly with Chairman Greenspan’s philosophy, came against a backdrop of a prolonged period of slow growth — inflation-adjusted growth of only 1.4 percent last year. The “slow growth” message is a sad answer for the growing number of workers caught in corporate downsizing and facing job insecurity or the prospect of uprooting their families to take distant jobs with less pay and less satisfaction.

It is an even a more disheartening message for people caught on the lower economic rungs and whose futures depend on an economy that is growing and producing new opportunities.

The Federal Reserve, under Chairman Greenspan, is dominated by fears of inflation — and the belief that low unemployment always translates into an acceleration of inflation. This theory has been the rationale for imposing restrictive monetary policies when the job picture brightens significantly.

Most of Congress accepts Greenspan’s theory as if it was holy writ. While it is difficult to detect in most of the media or in Presidential appointments, there are major dissents.

For example in an op ed piece in the New York Times, Dr. Robert Eisner, a former Northwestern University professor and former president of the American Economic Association flatly rejects the idea that jobs and growth invariably result in an acceleration of inflation. And Professor Eisner backs up his position with findings of other economic experts as well as the results of his own “strenuous econometric tests”, and the experiences of other nations.

“…let the Fed — and all our policy makers — divest themselves of the dogma that unemployment can be too low, and rather promote maximum employment and economic growth,” Dr. Eisner writes. “And as Wall Street witnesses that growth and perceives that the Fed is not trying to stop it with higher interest rates, we might well expect the Dow, and not inflation, to go ever higher and higher.”

As the Eisner op-ed asks: “Who’s afraid of jobs and growth?” It is a question that the Senate Banking Committee should have answered before rushing President Clinton’s Federal Reserve nominations to the Senate floor.

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