- The Washington Times - Monday, July 22, 2002

The job of the chairman of the Federal Reserve Board, as classically defined by one of Alan Greenspan's predecessors, is to "lean against the prevailing breezes." In 1996, Mr. Greenspan did just that, famously warning of "irrational exuberance" in the stock market.
These days, however, Mr. Greenspan seems to be leaning with the wind, citing "infectious greed" as the cause of the meltdown on Wall Street. True, the Fed chairman also said the economy is "fundamentally sound" and poised for recovery. But he is worldly enough to know that by merely mentioning the term greed, he would be validating the worst suspicions of corporate bashers everywhere and inviting the politicians to meddle further with America's wealth-creation machinery.
Indeed, the Senate had already rushed through, without a single dissenting vote, a package of so-called reforms that would basically criminalize corporate mistakes. After the Greenspan comments, the Republican-controlled House signaled it would go along. Out in the states, even Republican conservatives like Michigan Lt. Gov. Dick Posthumus, running to inherit John Engler's job, are screeching about the need to get tough on the malefactors of great wealth.
But when everybody agrees on something, it's usually a good time to pause and review the basic assumptions. One is that the amazing stock market advances of the late 1990s were simply an economic bubble that was bound to burst some day. Another is that the stock market decline of recent months can be attributed to the supposed failure of government to move quickly and more forcefully to restore public confidence.
As usual, there are important kernels of truth beneath these assumptions. In retrospect, stock prices did get awfully high in the late 1990s as ordinary people got sucked into the dot.com craze. But did this amount to nothing more than a financial bubble, as some have charged?
I am writing this column on a laptop computer linked to the office by an array of amazing technologies that give me access to a world of information that didn't exist 10 years ago and which even Alan Greenspan concedes have transformed the productivity of the entire world economy. That's real enough. There was a lot of financial flim-flammery surrounding the emergence of the railroad industry in the 19th century, the Internet of its day, but it transformed the United States into an economic superpower and lifted the living standards of all.
Sen. Carl Levin, Michigan Democrat, is leading a charge to require companies to expense stock option awards. That might make sense, but then a number of companies already are doing so as a result of market pressure. Washington's intervention isn't needed, and Mr. Levin might remember that one big reason for the popularity of stock options is that he himself voted a few years back to cap executive salaries, making it more difficult for companies to attract talented managers.
As for the market's sickening gyrations in recent weeks, these can just as easily be seen as fear of what Washington might do as fear of Washington's failure to be even tougher.
Americans aren't stupid, after all. Poll after poll demonstrates their well-founded skepticism that government will get things right. In the current frenzy to demonize corporate America, markets have every reason to smell a paradigm shift that poses a profound threat to the entrepreneurial culture that powered the phenomenal growth of the past two decades.
The old paradigm, best articulated by Ronald Reagan, saw economic incentives as the engine of innovation and progress. The new paradigm really the old, old paradigm of the progressive era sees government as the necessary nanny and equates wealth with theft. A reasonable interpretation of the stock market's behavior recently is that investors have been rushing to discount the possibility that the anti-capitalist paradigm will eventually crowd out the Reagan paradigm.
If nothing else, the tarnishing of the 1980s paradigm will make it doubly difficult to do what needs to be done: Cut regulation and marginal tax rates and, some would say, rethink the Fed's own deflationary policies, which arguably produced the economic pressure to which some weak-willed executives responded by accounting fraud. And if the economy stalls anew, investors have to calculate that there will be lots more government intervention. Too bad Alan Greenspan didn't choose this critical moment to lean against the foul breezes emanating from Washington.

Tom Bray is a Detroit News columnist.

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