On Wednesday, Alan Greenspan went to the 2nd happiest place on Earth: The U.S. Congress. It is a land where you get to spend other people’s monies to your heart’s content, where deficits don’t matter, where members get the greatest health care coverage in the world, guaranteed free for life.
As you would well imagine, this is a somewhat receptive audience to fables and fairy tales, and the Fed Chief did not disappoint. Sir Alan served up some wondrous stories, and presented an aggressively optimistic worldview to boot. The happy talk continues today, with round two in the Senate.
The Fed Chief, despite the recent employment data, remained upbeat: “As managers become more confident in the durability of the expansion,” Greenspan said, “firms will surely once again add to their payrolls.”
We surely hope they will, too. The chart below, however, suggests that our wishful thinking may be misplaced. There has been little in the way of job creation, despite the recession having ended over 26 months ago. This is surely aberrational – the typical recession/recovery cycle would surely have created a significant number of jobs by now.
Alas, in a post bubble environment, with over capacity caused by the bubble’s excess investment, it is not meant to be. The past excesses begat the present restructuring. The NYFed recognized these structural changes. The danger of Fed “happy talk” is that it raises the question of how a Central Bank can respond to these new challenges.
Indeed, some critics have suggested that the Fed has merely postponed any recovery with their easy money. The over dependence on ultra low interest rates caused a “credit bubble.” This extra debt (governmental and personal) may help in the short run. The problem is that it “does much more harm in the long run by preventing necessary restructuring of the economy, driving down saving, and endangering the long-term health of the banking system.”
Meanwhile, in a much less happy place, CEO Michael Eisner faces a hostile bid for his Disney.
Which gave us an idea: We suggest Eisner and Greenspan switch jobs.
Eisner has shown an extraordinary knack for extracting Billions of dollars in compensation, despite Disney’s underperformance. That skill will be handy in chastising Congress’s spendthrift ways and help balance the Federal Budget.
And Greenspan, comfortably ensconced at Disneyland, can think happy thoughts all day.
It is, after all, the happiest place on Earth.
UPDATE: 2/12/04 5:24PM
I just caught John Berry’s new piece, “Greenspan’s Happy and Likely to Stay That Way.” Berry was the former Washington Post writer who was widely regarded as a conduit to the Fed. Apparently, he took a WaPo buyout and is now a Bloomberg columnist.
Definitely check him out . . .
Greenspan’s Happy and Likely to Stay That Way
John M. Berry
Feb. 12 (Bloomberg)