Many years ago, when I was a starving – or at least an occasionally hungry – student, I put a windfall of three five pound notes in a book for safekeeping. Even then, I had thousands of books, and to this day I have never found the money.
On the upside, it probably spurred me to pay even more assiduous attention to my books than I would have done otherwise. On the downside, even if I were ever to excavate that crock of paper, the sum that would then have kept me in rent and pubs for three weeks would now barely cover a quick snack for two. Inflation has taken a considerable toll of the pound sterling, and the dollar. (If only I’d stashed away a hoard of Yen or Deutschmarks.)
The erosion of my three fivers notwithstanding, I am still not all that scared of inflation. However, I am scared by the reappointment of Mr Alan Greenspan to the Federal Reserve Board, and the departure from it of Alan Blinder, the only forceful voice for sanity on that concatenation of yeasayers.
I don’t know whether to be in a state of fear or wonder at the consequent revived confidence of Wall Street. It is perverse enough to make one wonder whether they shouldn’t sacrifice a chicken outside the New York Stock Exchange and base the auspiciousness of the day’s trading on peering into its entrails.
Closer scrutiny of what poultry potentate Frank Perdue did with his wholesale chicken entrails in Arkansas, and what his protege Governor Clinton did to assist him, could indeed cause some politically induced hiccoughs in the market. But otherwise, fowl intestines, no matter how fair yet foul, won’t cause the damage to the world economy that Mr Greenspan has.
One could indulge him by overlooking his nostalgia for the gold standard, or his heroine worship of Ayn Rand, whose works read like Mein Kampf rewritten by a breathy Barbara Cartland.
But one cannot overlook his dubious achievement in stifling economic growth. In pursuit of the Holy Grail of deflation, he has managed the world’s biggest economy into a growth rate that last year was less than Cuba’s.
And the banner under which he has scorched the economic earth has been control of inflation. Now during those years of inflation all my assets – with the sole exception of my lost 15 – have been doing very nicely thank you. My equity investments have more than compensated for inflation, my property investments have done very well indeed, and my future pension and current remuneration have expanded in line with the growing economy.
But then the Chicago boys and Greenspan rode into town and shot the hell out of enterprise. High interest rates make it more difficult for consumers to borrow and spend. They make it more difficult for entrepreneurs and producers to produce and invest. They make prospective homebuyers think very chilly thoughts.
But what about price stability? Humbug! Stability is what you get in grave yards; it is the flat line on the EEG. A dynamic economy always has elements of instability. It includes the financial equivalents of bursts of adrenalin and, in times of war or New Deals, it has the equivalent of electro-shock treatment – based on government spending, not government borrowing.
In contrast, whenever he has seen the patient show any signs of emerging from a coma, Greenspan has turned down the oxygen. And if there are signs of rigor mortis, he turns it up just enough to stop putrefaction. He raised interest rates six times in 1994 so that they are now at their highest real rate – 5 per cent – for many years.
So bond buyers are doing nicely. Banks and people who store currency under mattresses and in safe deposit boxes benefit. But the investors and employees in industry suffer – and these are the people whose collective endeavour produces all the wealth that the government borrows and repays at such high interest rates. It is the taxes on their earnings and production that finance the government. And it is the absence of those revenues that forces the government to borrow money that would be better invested in economic growth.
Ironically all this is done in the name of ending government interference in the economy. It is as if Dr Greenspan declared that nature should take its course with the patient, and then tied the sufferer to the bed and sat by it fiddling with the tubes.
Of course, it’s difficult to pin Greenspan down on any declarations at all, since his intentions are hidden behind prose and syntax which even his best friends describe variously as ‘opaque’, ‘soporific’ or ‘muddled’.
This is not some form of oral dyslexia but a conscious effort. As he said last year: ‘I spend a substantial amount of my time endeavouring to fend off questions, and worry terribly that I might end up being too clear.’ He need not have feared. He hasn’t been yet.
But does Wall Street really want the economy regulated by a Delphic Oracle whose gnomic utterances are always capable of retrospective realignment with reality? Better to read the Sybilline Books – they might find my 15 there.
