[Congressional Record Volume 140, Number 13 (Thursday, February 10, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 10, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
         FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN'S CRYSTAL BALL

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Mr. Speaker, when Federal Reserve Chairman Alan 
Greenspan chose to raise interest rates, did he look into his crystal 
ball and see something the rest of us did not? Before we chop more 
wood, stoke the furnace and buy a new shovel, let us check the track 
record of this foul weather forecaster.
  When Alan Greenspan was Chairman of the Council of Economic Advisors 
under President Gerald Ford, this country was suffering from rising oil 
prices. Due to OPEC, nominal oil prices tripled from 1973 to 1974 and 
then rose 30 percent in the next 4 years. This is what economists call 
an external shock to the U.S. economy.
  This situation warranted a different economic policy than the one the 
administration chose. What should have happened is that the economy 
should have been stimulated to offset rising oil prices. Instead, Mr. 
Greenspan chose to concentrate on inflation resulting in the Ford 
administration's conferences on inflation in which conferees chanted 
against inflation. It left the Ford administration totally unprepared 
to fight a major recession.
  If you have tunnel vision and see only inflation in your crystal 
ball, then you disregard the possibility of lower income and 
employment, and you will be blinded to the effects of rising oil 
prices.
  The House Banking Committee recently examined the records former 
Federal Reserve Chairman Arthur Burns had donated to the Gerald R. Ford 
Presidential Library in Ann Arbor, MI. The committee discovered an 
article, ``Ford Losing Confidence in Econ Aides,'' from which I will 
quote. It was written by J.F. terHorst, who was Assistant to the 
President in the Ford White House. It appeared in the December 16, 1974 
New York Daily News:

       Last fall, when he fashioned the anti-inflation package he 
     presented Congress following his series of economic summit 
     meetings, Ford relied heavily on the forecasts of his 
     consultants, including Economic Council Chairman Alan 
     Greenspan.
       They, his advisors, assured him that rising prices and 
     production costs were the prime enemy of a healthy America. 
     He was advised that while recession lurked distantly on the 
     horizon, it was not an imminent prospect that would confront 
     him immediately.''
       So today, Ford sits unhappily in the wreckage of his anti-
     inflation program while every economic barometer and 
     authority outside the White House suggests he badly 
     miscalculated the onslaught of a serious recession in the 
     United States.
       What disturbs the President is that his distinguished 
     economic counselors could not have foreseen two months ago 
     when he announced his anti-inflation program that America 
     would enter 1975 in the throes of slumping auto sales, 
     nationwide layoff in consumer products industries and 
     dwindling production, the hallmarks of a recession sliding 
     dangerously toward depression.

  Well my colleagues, unlike the seasons, it is clear that some things 
don't change. By concentrating on inflation, which at the time was 
strongly influenced by the rising price of import oil, Ford's advisors 
evidently failed to see the fragile nature of the U.S. economy and the 
great harm that rising energy prices could bring. The unemployment rate 
hit 9 percent in May 1975 and did not fall below 7 percent until 2 
years later, at the end of 1977.
  Today, Federal Reserve Chairman Greenspan seems to be giving the same 
sort of advice. Rather than acknowledging the fragility of the nascent 
economic recovery, Chairman Greenspan is charting a risky course by 
raising interest rates when no inflation is in sight--anywhere. I would 
like to ask Chairman Greenspan a question: Is it wise that the Federal 
Reserve risk the misery of slowing down a fragile economy when, as you 
admitted on January 31, 1993 before the Joint Economic Committee, that 
the inflation rate for all of 1993 may have been 2 percent or less?
  Chairman Greenspan and his colleagues at the Federal Reserve 
announced their pre-emptive strike in February 1994, at a time when 
more people are being laid off in any 1 month since 1989. But never 
mind this kind of news, especially if you have a good job. The spin 
master would like us to believe that these lay-offs are a good thing. 
They say showing part-timers and lower paid workers the door is a 
marvelous way to increase productivity.
  This reminds me of some turn-of-the-century rhetoric from a business 
organization that maintained the best way to increase productivity is 
for workers to look out the window and see the long unemployment lines.
  The truth is that the Federal Reserve held the money supply defined 
as M2 to a crawl after the 1990 recession, severely impairing the 
recovery. Nobel Laureate Milton Friedman has even suggested that slow 
money growth was a major factor in the election defeat of the last 
President.
  The FED's actions have a great impact on the country's economic well-
being. In May 1993, once the Federal Reserve finally realized it needed 
to give the economy a boost, it accelerated money growth. Today, we see 
no such clear thinking. Many critics agree that the current action of 
the Federal Reserve to raise interest rates will slow down money growth 
and economic activity.
  I believe the correct move at this stage of the recovery would have 
been to increase money growth to a 4-percent annual rate of increase. 
This action would have lowered short-term interest rates slightly and 
greatly aided the recovery without affecting inflation.
  That sensible policy has been completely voided by a Federal Reserve 
that intends to bring the economy to its knees to achieve zero 
inflation. On top of all the pain and suffering that a tight monetary 
policy will now bring, the decisionmakers at the Federal Reserve 
continue to refuse to let the public know what goes into the individual 
Federal Open Market Committee [FOMC] member's thinking, even if it's 
detrimental to the country's best interest. My colleagues, I ask you to 
join with me in supporting legislation that will require full and 
complete records of the actions taken by the FOMC which sets the 
nation's monetary policy.
  We must have complete accountability for the Nation's monetary policy 
at a critical time when Chairman Greenspan and his colleagues have 
mounted an attack on a mirage of inflation while record numbers of our 
fellow citizens are stuck in the reality of a deep freeze.

                  [From the Daily News, Dec. 16, 1974]

                                Terhorst

                           (By J.F. Terhorst)

       Washington--President Ford's determination to move swiftly 
     with new programs to combat the nation's growing recession 
     stems not alone from the pressure of industry, labor and a 
     worried citizenry. It results also from dismay with the 
     economic forecast of some of his own advisers.
       To be blunt about it, the President has lost confidence in 
     their ability to predict the economic future. He feels he has 
     received inaccurate advice and, having been burned 
     politically and publicly because of it, Ford now has adopted 
     a show-me attitude toward his economic counselors while 
     listening more seriously to the advocates of direct federal 
     action to overcome the country's economic crisis.
       This fall, when he fashioned the anti-inflation package he 
     presented Congress following his series of economic summit 
     meetings, Ford relied heavily on the forecasts of his 
     consultants, including Economic Council Chairman Alan 
     Greenspan.
       They assured him that rising prices and production costs 
     were the prime enemy of a healthy America. He was advised 
     that while a recession lurked distantly on the horizon, it 
     was not an imminent prospect that would confront him 
     immediately. Ford was further told that the warning signals 
     from the business community, from Wall Street and from 
     organized labor were probably exaggerated and, therefore, he 
     should not be deterred from a major government assault on 
     inflation.
       Heeding their recommendations, Ford stuck to his desire to 
     cut federal spending and bring the budget into balance for 
     the first time in many years. Their advice also prompted him 
     to recommend congressional passage of an income-tax surcharge 
     to reduce the amount of money taxpayers would have available 
     for spending on consumer goods, Ford was not totally 
     surprised at Congress' predictable reaction to his proposals 
     and, deep within, neither was the President convinced that a 
     public campaign of voluntary action to ``Whip Inflation Now'' 
     (WIN) would succeed. But he gave it the old college try 
     trusting the advice of the professional economists in the 
     White House, as well as the advisers he had largely inherited 
     from the Nixon administration.
       So, today, Ford sits unhappily in the wreckage of his anti-
     inflation program while every economic barometer and 
     authority outside the White House suggests he badly 
     miscalculated the onslaught of a serious economic recession 
     in the United States.
       What disturbs the President is that his distinguished 
     economic counselors could not have foreseen two months ago 
     when he announced his anti-inflation program that America 
     would enter 1975 in the throes of slumping auto sales, 
     nationwide layoffs in consumer products industries and 
     dwindling production, the hallmarks of a recession sliding 
     dangerously toward depression.
       Ford is too much of a gentleman to put the blame on his 
     predecessor in the White House. The country's economic woes 
     were inherited by him from Richard Nixon. But Ford, as 
     President, knows he is the man who will have to rectify the 
     situation if governmental action can do it.
       ``John Kennedy had his Bay of Pigs in Cuba,'' one Ford aide 
     remarked wryly, ``and Gerald Ford is having his at home.'' 
     Just as Kennedy had to learn quickly to rely on his own 
     intuition and judgment in assessing the proposals of his 
     advisers, so Ford has had to learn the difficult art of 
     looking beyond his staff. This is not to suggest that expert 
     advisers are not needed by Ford, but simply that he realizes 
     that he and not any one of them is the President.
       Just how Ford will respond in detail to the recession 
     problem has not yet been decided by him, but some clues 
     already are available. With the President's approval, 
     Treasury Secretary William Simon has signaled the Democratic 
     Congress that the Ford administration will cooperate in 
     devising an extensive public-service employment program to 
     deal with growing joblessness around the country.
       The President's session with auto company officials and 
     union leaders suggests a coming administration program to 
     bolster auto sales and put thousands of laid-off workers back 
     on the assembly lines. The auto industry is a vital part of 
     the national economy, since one in every eight workers is 
     employed in an auto-related field or is directly affected by 
     auto plant cutbacks.
       The Federal Government could help remedy the situation in 
     Detroit and elsewhere by temporarily suspending installation 
     of costly emission-control devices and by cutting income 
     taxes on individuals and corporations.
       Henry Ford 2d., one of those invited to the White House, 
     already has advocated a 10 percent cut in income taxes, 
     extended unemployment benefits for laid-off workers, 
     relaxation of federal controls on credit and a system of 
     federal loans to expansion-minded businesses that now cannot 
     afford to borrow money on today's high interest market.
       It is no longer a question whether Ford will embark on a 
     full-scale government program to combat recession. He has 
     gotten the message from those outside the White House that 
     recession is a greater threat just now than inflation, 
     despite what his economic advisers told him eight weeks ago. 
     Whatever shape it takes in January, the new Ford economic 
     package will mean at least two things:
       It will signal that he has given up his long-cherished hope 
     of balancing the federal budget for this fiscal year. Budget 
     balancing had been a Ford obsession during his quarter 
     century in Congress.
       It also will mean that Ford has determined that his own 
     judgment is more important sometimes than that of the best 
     intentioned advisers.
       The President's awareness of that precept is a good one, to 
     all those who have been urging Ford to break out of the 
     shadows of uncertainty that have bedeviled his young 
     administration.

                          ____________________