Alan Greenspan's recession deserves to be the Democrats' headache
Gerard Jackson
The myth that the downturn in the American economy was sudden and unpredictable and had nothing to do with Alan Greenspan has firmly taken root. Recessions are never sudden. They are not like train wrecks.
Their foundations are frequently laid down years in advance and their symptoms always emerge in plenty of time to give fair warning, at least to those capable of interpreting them. This is something Alan Greenspan should know.
For example, in The American economy: what goes up will come down (8-14 May 2000) I wrote that I had been told that cash was contracting at an annualised rate of 22 per cent; I then stated that if this figure is accurate and the rate persistent there is going to be one hell of a financial hangover. I also made it clear that the blame lay with Alan Greenspan.
Figures I received in January 2001 showed that the growth in M1, which is currency, had gone negative about 12 months beforehand and was still falling. I also pointed out in October that even though falls in manufacturing output were being reported the car industry still remained unaffected.
This situation could not last and the car industry would eventually contract as the recession worked its way down the production structure. And as the Good Book said: "And so it came to pass." Yet all of this bypassed the brilliant Alan Greenspan.
Despite the evidence of an impending recession the malevolent presence of Keynesian thinking still blinded, as it does today, many analysts to economic reality, including Alan Greenspan. Ian Shepherdson, chief U.S. economist for High Frequency Economics, was one of those who could not seem to grasp what was really happening to the US economy.
That manufacturing was contracting causes him little concern because being a Keynesian he believes that: "The fundamental engine of the economy is the consumer sector, and that is quite robust." Alan Greenspan was no better.
This view, as I have explained many times before, is just plain nonsense. Consumption does not drive economies nor fuel them. Entrepreneurs do the driving while savings provide the fuel.
The result of Shepherdson's fallacious thinking is the kind of economic bilge that would have us believe that the loss of more than $3 trillion in paper wealth because of the stock market fall since March 2000 cut consumer spending by about $80 billion and thus depressed spending and the economy. How a fall in the value of assets cuts spending has yet to be persuasively explained.
Falling assets values are not a cause of falling expenditure but one of the symptoms of an emerging recession, as is falling spending, especially in manufacturing. It's just that consumer spending is hit last. This fact obscures for a time what is really happening.
The result is that economic commentators tell us not to worry because consumer spending is still robust. God help us. Although there is nothing knew about this analysis Alan Greenspan appears to be completely oblivious to its existence.
Now it was Alan Greenspan's loose monetary policies that brought about the recession, and it is Greenspan who should be held responsible. Unfortunately, Republicans failed to relentlessly impress upon the people the fact that the recession was well underway before the election was held and therefore the Clinton administration should also bear the responsibility.
This failure left the country's leftwing mainstream media laying the blame at Bush's door as part of its delegitimisation agenda.
Like the Democratic Party, there is nothing democratic about most of America's media. It is run and manned largely by leftwing brownshirts who have as much respect for the truth as did Joseph Goebbels.
Gerard Jackson is Brookes' economics editor
BrookesNews.Com
Monday 30 August 2004