- The Washington Times - Tuesday, March 21, 2000

In the 1994 movie "Speed," Keanu Reeves and Sandra Bullock raced across Los Angeles in a Santa Monica city bus. The twist was that if its velocity dropped below 55 mph, a bomb planted aboard would blow them and their passengers to bits.

This spellbinder was tedious compared to the suspense thriller in which Americans are starring today. Written and directed by Alan Greenspan, "Sloth" involves a prosperous economy that the Fed Chairman will explode unless it slows down immediately.

"Until market forces assisted by a vigilant Federal Reserve affect the necessary alignment of the growth of aggregate demand with the growth of potential aggregate supply, the full benefits of innovative productivity acceleration are at risk of being undermined by financial and economic instability," Mr. Greenspan groaned March 6. Anticipating higher interest rates, the Dow tumbled 374 points the next day as the Nasdaq slipped 57.

Mr. Greenspan has steered America into a no-win situation. Concerned that consumers will resurrect inflation by purchasing more goods and services than industry can deliver, Uncle Alan wants Americans to stop spending so much money.

What if millions complied and canceled plans to buy bigger homes, purchase new cars or visit Disney World? Many would invest in equities instead. Of course, this would increase stock prices, prompting the Fed to panic yet again and raise interest rates to squelch the joy on Wall Street.

The sad results of Mr. Greenspan's public nail-biting already are emerging. Unemployment is just 4.1 percent, but job creation plunged from 384,000 in January to 43,000 in February.

New home sales fell 4.2 percent in January. Since last June, the Fed's four 0.25 percent rate increases have lifted housing costs. Those with adjustable mortgages should get used to sharing more of their wages with their loan officers. As Mr. Greenspan flatly declared Feb. 17: "The central bank will continue to raise rates to slow the economy." The Fed is expected to punish borrowers with at least two similar rate rises starting today.

Wells Fargo has seen mortgage applications slide and, consequently, dismissed 75 home-lending support staffers last month. "The industry projects a 20 percent decrease in loan volume in 2000, and we are planning for that," spokesman Dan Frahm explains.

The day that January's home sales plunge was revealed, the Department of Housing and Urban Development instructed Fannie Mae and Freddie Mac to lend more money to low-income homebuyers. What Chairman Greenspan makes unaffordable, Housing Secretary Andrew Cuomo subsidizes.

Mr. Greenspan's obsession with decelerating the U.S. economic bus might make sense if inflation were about to explode. But for 1999, the Consumer Price Index climbed just 2.2 percent. Inflation remains a figment of Mr. Greenspan's imagination.

Only rising oil costs threaten price stability. Here, the Fed is powerless. Congress could help by cutting oil taxes (to ease the sting from higher fuel bills) and opening Alaskan lands for petroleum production. U.S. diplomats also should persuade OPEC oil ministers to boost output. Unless Mr. Greenspan joins the Foreign Service, such negotiations are outside his portfolio. Higher interest rates only will further impoverish those struggling to fill their gas tanks.

With companies willing to export manufacturing and service jobs (such as software development to India), American employees are reluctant to demand big raises. Many employers now offer stock options and other non-inflationary benefits. This helps explain why unit labor costs rose just 0.7 percent last year.

Meanwhile, cost-saving technologies help keep inflation as tame as a stuffed tiger. Brand-new one gigahertz microchips soon will turbocharge computers and slash transaction costs.

Chrysler, Ford and GM recently launched an on-line auction company to consolidate supply purchases. Greater efficiency reportedly could cut typical car prices by $1,000.

GoCargo.com and RightFreight.com will help manufacturers find the lowest-cost air and sea carriers. Consumers should enjoy these savings, too.

Greenspan also believes productivity causes inflation because it "fosters higher expectations for long-term corporate earnings," boosting equity prices and, he thinks, irresponsible spending by enriched stockholders. This notion makes neither economic nor common sense. If 100 auto workers who once produced 100 cars weekly now build 110 for stable wages, the price-per-car goes down, not up. Perhaps Uncle Alan is doing headstands in his office.

Mr. Greenspan's statements are departing more dramatically from reality as he succumbs to irrational despair. A group of distinguished free-market economists such as CNBC's Lawrence Kudlow, former Reagan adviser Arthur Laffer and GKST's Brian Wesbury should conduct an intervention with Mr. Greenspan to remind him of the way the world works. The alternative is to watch Alan Greenspan make the U.S. economy go ka-boom.

Deroy Murdock is a senior fellow with Atlas Economic Research Foundation in Fairfax.

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