Inflation and the Federal Reserve

Alan Greenspan, chairman of the Federal Reserve — an agency that serves purposes which officials in other western countries would call “central banking functions” — must keep saying to himself these days that “It doesn’t get any better than this.” Here he is, head of the most powerful federal regulatory agency in the government and all conservatives can do in Congress is to praise him effusively every time he goes there to testify. Here he is, the boss of the powerful Fed which is funded by private banks, not by Congressional appropriations, and whose regional divisions are actually run by private bankers, yet none of the liberals in Congress object to this troubling business influence.

And here he is, widely known as a fierce watchdog against inflationary trends, yet he is remarkably selective in what kind of inflation he is against.
For example, he now recognizes stock values along with housing values as mainstays of our economy. The prices of stocks have risen vastly more than the prices of housing over the past six years. Yet apart from some vague mumblings, he seems to be viewing prices of stocks as outside the realm of an inflationary trend.

Other numbers are also going up but they are clearly outside the conventional definitions. Corporate welfare disbursements and preferences are proliferating in every direction at all three levels of government, totalling hundreds of billions of dollars a year. The percentage of the working poor that is under the poverty level is at a record high. The number of Americans without any health insurance continues to go up — nearing 50 million children, women and men.

More families are making less in inflation-adjusted income than families did in 1970. The figures on corporate and economic crimes continue to rise sharply. Just read the Wall St. Journal and other business publications that report on stockholder,consumer, tax and government contract frauds.

Could it be that Mr. Greenspan is a willing prisoner of his own skewed economic indicators — the kind that led one economist this month to say “this economy is close to perfection?” Nor is he above inflating one indicator — interest rates — in order to deflate other parts of the economy — a maneuver that doesn’t affect large corporations as it does consumers and small businesses. The Fed Chairman does show consistent concern about one inflationary indicator — any rise in ordinary wages — and he is regularly relieved to see that they have been “stable,” even though labor’s productivity has been up sharply recently. It is clear that he loses little sleep over workers not sharing in the massive profits that their companies are reaping.

If only just once Mr. Greenspan would testify before a Congressional Committee, as if he represented the American worker, consumer and small taxpayer, instead of the Wall Street establishment, he might open his testimony this way:

“Mr. Chairman and distinguished members of the Joint Economic Committee, I come before you to declare that the state of our economy is not very good. I realize that this conclusion is at odds with my previous testimonies in recent years, but an entire new set of indicators has come to my attention

Please consider that nearly 25% of our children are growing up in poverty — the highest percentage by far in the western world. The bottom 80% of the workforce is making less in inflation-adjusted dollars than was made 25 years ago. The same is the case with inflation-adjusted income of the median family.

“What’s more, these Americans have additional consumer expenditures they must reluctantly make because more members of the average family have to work outside the home, often commuting longer distances and having to maintain more cars and pay for more household functions.

“Consumer debts are at record highs, vastly greater in relative as well as absolute terms than in 1970 and this has led to record personal bankruptcies. The low income housing stock isin a shabby and inadequate state. And many of the public structures, such as schools, clinics and mass transits, are old and in terrible repair, all of which depress the standard of living of the nation’s majority.

“In addition, while I am not worried about a few years of foreign trade deficits, about 25 years of uninterrupted trade deficits are indeed worrisome.

“Mr. Chairman, the sharp increase in wealth inequality — now at a 70 year high and greater than any other western nation — certainly suggests that the growth of the economy during the past decades has not been advancing the long-term security of many families. This widening gap, enhanced by taxpayer subsidies, results in the top 5% of the wealthiest people receiving the bulk of the economic gains since 1973, including those from stock ownership and appreciation.

“I do not begrudge the wealth of Bill Gates, but it does tell us something to learn that his net worth is equal to the combined net worth of the bottom 120 million Americans. After years of hard work, these people are essentially broke, living at best from paycheck to paycheck. In my next testimony, I hope to elaborate these “people” economic indicators and suggest some directions for economic policy-making. Thank you.”

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