Letter PI Wednesday, February 19, 2003

TEFLON ECONOMIST'

Greenspan put U.S. economy on the ropes

The P-I's Editorial Board joined in the rebuild of Alan Greenspan's reputation in its Friday editorial. Greenspan is truly the Teflon economist. Forgotten on the other side of Sept. 11 is the Fed chairman's nonsensical raising of interest rates throughout the year 2000. Combined with exploding energy prices that year, his much-criticized action put the economy on the ropes.

Now we are all finding out that it's easier to stop an economy with interest rates than it is to restart one. It appears the politicians were right in 2000 -- at least the Democrats. They were right, too, according to many, when throughout the Clinton years they argued for lower rates while Greenspan clung to the outmoded formula that says low unemployment means high inflation. Unemployment sunk to near 4 percent under Clinton without inflation becoming a problem. In spite of the absence of evidence for his premises, Greenspan kept real interest rates high. I guess this is what the P-I means by "consistent."

Direct assistance to the states is the best policy. It saves their much-needed services and boosts aggregate demand in a straightforward and effective way. The tax cuts only boost deficits. Or are we going to stand by with the P-I and Greenspan, waiting and wondering if, when and for how long the Fed's zero interest policy is going to work?

Alan Harvey
Seattle