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“When a nation’s young men are conservative, its funeral bell is already rung.” Henry Ward Beecher The left/liberal/ progressive political magazine for Bryan/College Station A Journal of Opinion, Comment, and Investigation P.O. Box 2711 College Station, TX 77841-2711 Email: [email protected] touchstone/ H E James K Galbraith teaches at the LBJ School of Public Affairs, U.T.Austin. JAMES GALBRAITH Stop the Sabotage by the Fed The scene for November is nearly set. South Carolina did for George W. Bush what it did for Bob Dole: it sent him onwards, born again at Bob Jones University and wrapped in the Confederate flag. But the New Hampshire verdict, repeated at Michigan, will remain the authentic one. Like Dole, Bush is a weak candidate who will have to be rescued again and again from a popular insurgent by party leaders and the God Squad. On the Democratic side, Vice President Gore has campaigned effectively since New Hampshire, helped by a press that lost interest in my man Bradley. Gore has emerged as a strong candidate, like him or s the Fed doing this on purpose? Mo not. He secured his base early, held on to it, Lives cannot be proven. But what mat and can now move toward the independent ters are effects, not causes. The Fed’s vote, rather than away from it as Bush has actions will not preserve they will de been obliged to do. stroy full employment without inflation. So supposing it will be Gore and Bush in They will also eventually destroy the budNovember, what will the issue be? In the get surplus, and the small wage gains and immortal Carvillism, “The Economy, progress made since 1994 in reducing inStupid.” Gore will run on the long boom, equalities of pay. They could undo, and in a full employment without inflation, the high fairly short time, the entire reputation of the stock market, e-commerce and e-wealth. It administration of Bill Clinton and Al Gore. will be no contest. If the boom holds. I do not blame Alan Greenspan person But what if it doesn’t? ally. Like him or not, the long boom is his A sword hangs over Al Gore. It is the inbaby; full employment without inflation is terest rate, the instrument of a relentless his accomplishment. Since Greenspan’s Federal Reserve campaign against, full emown reputation will be destroyed, along ployment. Since productivity growth is with Clinton’s, if the economy goes sour, high and inflation is nil, the Fed can barely he may well have mixed emotions about pretend that it has real reasons for jacking what the Fed is doing now. interest rates to the sky. There is no crisis, But Greenspan is only the chair of the not even a problem. The Fed has merely Fed’s Open Market Committee. And that decided to end the long boom. peculiar decision-making body is heavily The first victim is the stock market. Ris influenced by the twelve presidents of the ing interest rates have been killing off the regional Fed Banks, men who are not apblue-chips for months, while actually pointed by Clinton and not accountable to pumping up the tech sector as speculators anyone beyond their local, banker-domidoubled their bets. But a bubble squeezed nated boards. Two of these curious policyin this way pops all the sooner. The end makers are veterans of Reagan’s Council of may be underway now. Crashing stock Economic Advisers; many others are simprices will deflate the “wealth effect” ple-minded reactionaries who seem to get cutting hard not only at speculators but also most of their financial ideas from the counat the pensions of the newly retired and the try club set. On the Board of Governors, pension funds of millions who hope to reClinton’s three surviving Democrats are tire some day. political lightweights. Greenspan must Next, high interest rates will hit small therefore manage an F.O.M.C. with an agbusiness, housing mortgages, and car gressive right-wing majority; he could loans. They will squeeze middle-income hardly act otherwise even if he disagreed families with small portfolios and big with them. debts. Only a few will actually have lost Can anything be done? Yes. The key to their jobs by November but that doesn’t this situation to the fate of the long matter. With the crunch on and anxieties boom, to the reputation of his Presidency high, Al Gore will lose the number one piland also to the election remains in Preslar of his campaign. ident Clinton’s hands. There are two gaping vacancies on the Board of Governors of the Federal Reserve System. Clinton could fill them now if necessary by recess appointment since one nomination is already sitting under Phil Gramm who shows no sign of moving on it with independent, pro-growth economists like Jane D’ Arista of the Financial Markets Center or Thomas Palley of the AFL-CIO. A couple of good new people could galvanize the Federal Reserve Board. They could keep the saboteurs in check and save the country into the bargain. 22 THE TEXAS OBSERVER MARCH 17, 2000