[Congressional Record Volume 142, Number 21 (Tuesday, February 20, 1996)]
[Senate]
[Pages S1269-S1274]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE CHAIRMAN OF THE FEDERAL RESERVE BOARD
Mr. HARKIN. Mr. President, I would like to take a little time this
morning to speak about an issue that has simply not received the kind
of scrutiny and attention that it deserves. That is the renomination,
or possible renomination of Alan Greenspan as Chairman of the Federal
Reserve Board. Arguably, perhaps, the second most powerful person in
America today with regards to our economy and unemployment and interest
rates and how fast our economy will grow or how slow it will grow is
the Chairman of the Federal Reserve Board.
Some have said the most important person is the President, but I
guess to my way of thinking I think perhaps the Federal Reserve Board
Chairman is the single most important and most powerful person in
America today regarding decisions about what our economic life is going
to be like in the months and few years ahead.
I say that not to denigrate the office of the President, but simply
to point out that because of the downsizing of Government, because of
budget cuts, because of shifting more power from the Federal Government
to the States, because of the diminishing role of the Federal
Government in the economic life of our country--I do not mean to get
into a debate of whether that is good or bad. We have those debates all
the time around here. The fact is it is happening. Thus, it devolves to
the Federal Reserve Board in their deliberations about interest rates
and discount rates and Federal fund rates to decide just what is going
to happen in the economy. That has more of an impact on the economic
life of America today than anything the President can do and arguably
more important than anything we can do here in the Congress of the
United States. Yet, this position of so much power and so much
authority is kind of kept in the dark corners. We have not shown much
sunlight on the Federal Reserve, or the chairmanship of the Federal
Reserve and on who should be the Chairman.
Mr. Greenspan is finishing a 4-year term as Chairman. His time is up,
I believe, in just a few days. It will be up to the President, under
the law, to either reappoint Mr. Greenspan or to choose someone else to
send to the Senate for confirmation as the new Chair of the Federal
Reserve Board.
I make the argument today, as I did over a week ago, Mr. President,
on the
[[Page S1270]]
floor of the Senate, that Mr. Greenspan's time has come and gone, that
his feet are firmly planted in the past and that his policies are no-
growth policies. They are policies of high interest rates, no growth
that is going to throttle our economy. Mr. Greenspan's policy has
been--and I think a close scrutiny of his comments and his tenure both
at the Federal Reserve and years ago on the Council of Economic
Advisers will show--that here is an individual that has little concern
for unemployment or what is happening to average Americans. Like a
laser beam, his sight is only on inflation and the bond market and
nothing else.
I believe, Mr. President, that has worked to the detriment of our
country.
Mr. President, it was 50 years ago today that President Truman signed
the Employment Act of 1946 into law--50 years ago this day. That is why
I feel my words today are so important. That measure that signed into
law 50 years ago today said that we should make it a matter of national
policy to help create and maintain conditions to promote maximum
employment, maximum production and purchasing power in our country.
Note that it said ``maximum employment,'' to promote it as a national
policy.
Mr. President, there is a lot of rhetoric about the need to promote
strong families, but when one talks about strong families, having a
decent job is a crucial component of whether or not you have a strong
family.
To further the goals of the Employment Act of 1946, Congress passed
the Humphrey-Hawkins Act in 1978, which by law set out a requirement
that the Federal Reserve have a goal to maximize full employment along
with stable prices and moderate long-term interest rates. In other
words, what we were saying is, you do not just take one; they all have
to be kept in balance: full employment, stable prices, and moderate
long-term interest rates.
Mr. President, we ought to be reaffirming those goals, but
unfortunately some now say we should limit them instead. They want to
prescribe low or no inflation as the sole criterion, as the sole cure
for all of our economic ills. Well, you can have zero inflation and you
can have it with very high unemployment. I do not think that is what
our country wants.
My colleague from Florida, Senator Mack, has a bill to provide that
the single goal of the Federal Reserve should be long-term price
stability with only a secondary concern for the effects of employment.
The bill says the single goal of the Federal Reserve should be long-
term price stability. In other words, Senator Mack's bill basically
takes that part of the Humphrey-Hawkins Act of 1978 that says that we
should have a goal to maximize full employment and takes that out of
appropriate consideration.
Imagine that, that we should not be concerned about unemployment. I
tell you I find that mind-boggling, that someone would even suggest
that we should not properly consider unemployment, we should only
consider long-term price stability.
I might understand that a Senator or Congressman or more than one
might prefer that option as a matter of policy, propose it at least for
debate. I must admit I have not spoken personally to my friend Senator
Mack--and he is my friend, the great Senator from Florida--I have not
spoken with him personally about it. Maybe he only wants this open for
debate. I do not know. But the disturbing part is not that Senator Mack
introduced this bill, the disturbing point is that Alan Greenspan, the
Chairman of the Federal Reserve, has endorsed that legislation.
Now, lest anyone think I am making this up, I have the hearing
transcript where Mr. Greenspan basically, in open hearings, said he
endorsed that legislation. Mr. President, here is the hearing record.
This is a verbatim transcript from September 22, 1995, before the
Senate Banking, Housing, and Urban Affairs Committee. I will just read
the portion about Mr. Greenspan. It says:
Your bill [referring to Senator Mack] which we fully
support--
The rest does not make much sense. The most important, he said,
``Your bill, which we fully support.''
Mr. Greenspan has come out in support of taking out of consideration,
in setting their policies, any concern for unemployment.
We will look now at the history. Between February 1994 and February
1995, 1 year, he raised interest rates by 3 full percentage points.
Why? Well, in the fear that inflation might happen. But when asked, Mr.
Greenspan himself said there was no inflation. Yet he raised interest
rates 3 percentage points. I might point out, Mr. President, that Mr.
Greenspan raised those interest rates five times before the election of
1994--five times he raised interest rates. The economy came to a
grinding halt. Wages were depressed. People were not hiring. Business
could not invest. The economy became more stagnant in 1994.
I might also point out there has been some talk lately that the Fed
is loosening up and starting to reduce interest rates. I can imagine
Mr. Greenspan wanting to get reappointed as Fed Chairman and wanting to
look good so he brought interest rates down a little bit. In 1 year,
February 1994 to February 1995, Mr. Greenspan raised interest rates 3
percentage points. From February 1995 to this February, they have only
gone down three-quarters of 1 point--three-quarters of 1 point. I think
that says it all.
Again, he raised interest rates, no inflation in sight. But because
of Mr. Greenspan's narrow vision, he damaged our economy and limited
the opportunity of millions of Americans to secure employment. Rather
than viewing rising incomes of average Americans as a good thing, Alan
Greenspan used it as a threat of future inflation.
Mr. President, inflation today is at its lowest point in 30 years,
with only 1 year being an exception. Unemployment is now at 5.7 percent
and has been below 6 percent for 17 months. I might point out that the
law stipulates as a goal 4 percent unemployment, not 6 percent.
Mr. President, unemployment is high, just below 6 percent while
Inflation is down. All is not well in our economy. Real incomes of
average families have been falling. This past Sunday's Washington Post
had a chart which showed the family incomes from 1979 to 1993. The top
20th of our Nation had their incomes rise by 29 percent, better than 2
percent per year for the top 5 percent of our country. However, those
in the middle saw their standard of living drop by 2.6 percent. The top
5 percent had their incomes rise by 29 percent; the middle had a drop
of 2.6 percent. Those families in the bottom 40 percent of our
population saw their incomes actually fall during that period of time--
not go up, but actually fall. For the bottom 20 percent, they fell by
more than 1 percent a year; the top 5 percent in income in our country
increased their incomes by better than 2 percent a year. The bottom 20
percent saw their incomes fall by 1 percent a year over that same
period of time.
It has not always been that way. From 1966 to 1979 all groups saw
rising incomes of more than 1 percent a year--all groups. Each one-
fifth of the population saw real, genuine gains above 1 percent per
year in sharing in America's growth. Not anymore. A few at the top are
making more and more and the people in the middle are either staying
stagnant or they are going down. Now, there are probably a lot of
reasons for this change. One of the reasons we are seeing this lack of
income growth across the board is a purposeful, deliberate, slow-growth
policy pushed by the Chairman of the Federal Reserve Board. Always
fearful of inflation, even when little threat exists, he has used his
position to maximize interest rates relative to inflation, smothering
any hint of substantial growth.
Mr. President, Mr. Greenspan cannot have it both ways. He cannot
raise interest rates by 3 percent, say that there is some threat of
inflation out there but he cannot put his finger on it, and then turn
right around as he is raising those interest rates and suggest that the
Consumer Price Index possibly overstates inflation by as much as 1 to
1.5 percent. How can he say that inflation is threatening and then turn
around and say that the Consumer Price Index overstates it by 1 to 1.5
percent when inflation is only about 2.5 percent per year right now.
Yet Mr. Greenspan has tried to have it both ways.
The President and the CBO are looking at the economy right now
growing at about 2.5 percent over the long term.
[[Page S1271]]
We had a big debate here last year, Mr. President, about what the
economy is going to do in the future, what our budget ought to be and
everything. If the economy can grow by an extra point, say 3.5 percent,
the impact on Americans' standard of living over a period of time would
be huge. How much? Trillions of dollars, trillions of dollars in
additional income for America, thousands of dollars for the average
family a year, if we had a progrowth policy at the Federal Reserve
Board.
Even if we cannot get to 3.5 percent, if we could get it to 3
percent, we could wipe out our deficit, balance our budget, provide
better wages for Americans, more job opportunities and probably reduce
unemployment. But it is going to take a different person at the helm of
the Federal Reserve to make this happen.
Now, I had in the past called upon the President to nominate a
different person, someone with a more progrowth policy to head the
Federal Reserve. I am pleased that the President has suggested we need
a debate about the ability of the economy to perform at a higher growth
rate over the long term. As I understand it, from reading the
newspapers last week, the President wanted to appoint Felix Rohatyn to
be Vice Chairman of the Federal Reserve. I do not know this, but I
assume the President felt that with Mr. Rohatyn, who is a progrowth
individual, there would be good debate at the Federal Reserve about the
need for progrowth policies. But there was solid opposition from some
on the other side of the aisle here in the Senate on the Banking
Committee, and they said no way would they permit Felix Rohatyn to be
approved and to go through for confirmation.
I find that very disturbing, Mr. President, that a person of the
caliber of Felix Rohatyn is turned down before we even have one
hearing, turned down by people on the other side of the aisle, I think,
because they did not want this debate to take place. That is a shame. I
think it is a great loss. If America is to achieve greatness, we have
to allow the economy to grow faster.
Now, bond traders on Wall Street will always be pushing for a tighter
monetary policy. I understand that. But the President and the Chairman
of the Federal Reserve Board need to look more broadly at the needs of
the whole economy and the welfare of American families who need an
improved standard of living and not just the welfare of the bonds
traders on Wall Street.
Mr. President, so I do not seem like a voice crying in the
wilderness, I will read parts of an article by the editor in chief of
U.S. News & World Report, Mortimer Zuckerman, February 12, 1996,
entitled ``Chairman Greenspan, Retired.''
I want to read a couple parts of this, from the February 12, 1996,
U.S. News & World Report:
The Federal Reserve Board cut the federal funds rate last
week, right? Wrong! Yes, nominal rates went down a minuscule
one quarter of 1 percent.
Mr. Greenspan looked good saying he is cutting interest rates. Mr.
Zuckerman is pointing out they really did not go down.
But real rates, adjusted for inflation, actually have
increased because the inflation rate has fallen faster over
the past several months than has the Federal funds rate.
Running scared from a phantom inflation, Alan Greenspan's
``dear money" leadership has caused the Fed to exert a
monetary choke hold on one of the weakest economic recoveries
since World War II, at the cost of billions of dollars in
lost output and tens of thousands of uncreated jobs.
Mr. Zuckerman has it right. He goes on:
Just to keep real rates where they were, the federal funds
rate would have had to have gone down by as much as a full
percentage point. Instead, we have a fed funds rate that is
still nearly 3 points above the most recent quarterly
inflation rate, much higher than normal by historical
standards. What's more, this is not only the wrong battle, it
is the wrong target. Higher interest rates hurt manufacturing
more than services, yet manufacturing inflation has not been
a problem. In fact, we are experiencing the worst
manufacturing slow down since 1991, and the indicators
suggest even more weakness ahead. Just last month, for
example, nonfarm employment fell by 201,000 jobs. No wonder
more and more businesspeople, from the National Association
of Manufacturers to Main Street and Wall Street, are so
unhappy with Federal Reserve policy.
Mr. Zuckerman goes on, in another part of his article, to say this:
The jobless recovery of the early 1990s has become the
wageless expansion of the mid-1990s. We have no wage pressure
on prices. We also have no import inflation because of a
stronger dollar. At the consumer level, spending is very
weak, reflecting stagnant personal income and real wages.
Retail sales growth, which averaged 7.8 percent during 1994,
declined to less than 5 percent in 1995. In the final quarter
of the year, consumer spending was growing at an annual rate
of 1 percent or so; adjusted for inflation, that's an actual
decline. As a result, so-called demand-pull inflation--when
hot consumer spending pulls up prices--is nonexistent. What
we do have is a buildup in inventories, especially of durable
goods, that is bound to slow the economy even more.
Last, Mr. Zuckerman closes his article by saying the following:
We must do better. The fear of inflation has proved to be a
chimera. Short rates have come down too little and too late
to boost a weakening economy. The country does not have to
endure the effects of the Fed's misjudgments in 1995 being
extended into 1996.
Alan Greenspan's term as Fed chairman would not survive a
Democratic Congress. It ought not survive a Republican one
either. Congressional Republicans should recognize that none
of their programs to cut back government will survive a slow-
growing economy that fails to provide Americans with good
jobs and a sense of optimism about the future. The
inflationary obsession of the Fed is not healthy; it is
reactionary. It is cramping out todays and sacrificing our
tomorrows.
Mr. President, I ask unanimous consent that the full text of Mr.
Zuckerman's article be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:
[From U.S. News & World Report, Feb. 12, 1996]
Chairman Greenspan, Retired
(By Mortimer B. Zuckerman)
The Federal Reserve Board cut the federal funds rate last
week, right? Wrong! Yes, nominal rates went down a minuscule
one quarter of 1 percent. But real rates, adjusted for
inflation, actually have increased because the inflation rate
has fallen faster over the past several months than has the
federal funds rate. Running scared from a phantom inflation,
Alan Greenspan's ``dear money'' leadership has caused the Fed
to exert a monetary choke hold on one of the weakest economic
recoveries since World War II, at the cost of billions of
dollars in lost output and tens of thousands of uncreated
jobs.
Just to keep real rates where they were, the federal funds
rate would have had to have gone down by as much as a full
percentage point. Instead, we have a fed funds rate that is
still nearly 3 points above the most recent quarterly
inflation rate, much higher than normal by historical
standards. What's more, this is not only the wrong battle, it
is the wrong target. Higher interest rates hurt manufacturing
more than services, yet manufacturing inflation has not been
a problem. In fact, we are experiencing the worst
manufacturing slowdown since 1991, and the indicators suggest
even more weakness ahead. Just last month, for example,
nonfarm employment fell by 201,000 jobs. No wonder more and
more businesspeople, from the National Association of
Manufacturers to Main Street and Wall Street, are so unhappy
with Federal Reserve policy.
The traditional central bank role is to take away the booze
when the party gets too raucous. But what we have today is a
glass of water served to a gathering of teetotalers. There is
no inflation to fight. The nominal rate is about 2 percent
for the last quarter of 1995, and even that is overstated by
as much as 1 percentage point. In short, inflation is
declining instead of rising, as it usually does at this point
in a business cycle--a clear tip-off that the economy is not
in good shape. Even the Fed's key indicator of inflation--the
time it takes for vendors to make deliveries of capital
goods--is stable, in contrast to the stretching out that
occurred at the end of 1994. Unit labor costs (wages and
benefits adjusted for productivity), which make up two thirds
of a product's price, are no higher today than they were a
year ago--the first time we have had zero growth in this
index for 30 years.
The jobless recovery of the early 1990s has become the
wageless expansion of the mid-1990s. We have no wage pressure
on prices. We also have no import inflation because of a
stronger dollar. At the consumer level, spending is very
weak, reflecting stagnant personal income and real wages.
Retail sales growth, which averaged 7.8 percent during 1994,
declined to less than 5 percent in 1995. In the final quarter
of the year, consumer spending was growing at an annual rate
of 1 percent or so; adjusted for inflation, that's an actual
decline. As a result, so-called demand-pull inflation--when
hot consumer spending pulls up prices--is nonexistent. What
we do have is a buildup in inventories, especially of durable
goods, that is bound to slow economy even more.
Meanwhile, the deficit continues to decline and in 1996 and
1997 will create more fiscal drag because no agreement has
been reached on the budget, thereby squeezing discretionary
government spending even more harshly. Exports are
constrained by the weakness of our biggest trading partners.
[[Page S1272]]
Only corporate investment is booming, boosting supply more
rapidly than consumption--another clear antidote to any
inflationary pressure. But it isn't enough: Merrill Lynch is
justified in lowering its forecast for U.S. economic growth
to less than 2 percent for 1996, the first half being
particularly weak.
We must do better. The fear of inflation has proved to be a
chimera. Short rates have come down too little and too late
to boost a weakening economy. The country does not have to
endure the effects of the Fed's misjudgments in 1995 being
extended into 1996.
Alan Greenspan's term as Fed chairman would not survive a
Democratic Congress. It ought not survive a Republican one
either. Congressional Republicans should recognize that none
of their programs to cut back government will survive a slow-
growing economy that fails to provide Americans with good
jobs and a sense of optimism about the future. The
inflationary obsession of the Fed is not healthy; it is
reactionary. It is cramping our todays and sacrificing our
tomorrows.
Mr. HARKIN. Mr. President, as Mr. Zuckerman has said, we need to stop
chasing the ghost of inflation. We need to appoint a respected
individual who will take a balanced view about the needs of our economy
and not place a choke hold on our Nation each time it strives to move
forward with any real speed. Since Alan Greenspan became Chairman of
the Federal Reserve, the economy has grown by a dismal 2.1 percent,
compared to 3.4 percent from 1959 through 1987.
Again, the cost is in the mega-billions of dollars, that it has cost
our economy because of Mr. Greenspan's position. Many economists are
now looking at growth for 1996 at around 2 percent with the current
Federal Reserve policies.
Mr. President, there is another meeting of the Open Market Committee
on March 26. In reading the popular press, there is some indication
that Mr. Greenspan has kind of leaked out that there could possibly be
another cut in interest rates. What, a quarter of a percent? As Mr.
Zuckerman says, the last quarter of a percent actually was not a cut at
all. It needed to go down by a full percentage point. So, even if Mr.
Greenspan reduces interest rates by another quarter of a percent, which
he is probably going to do, it does not mean that much.
One last thing. We should also be concerned about Mr. Greenspan's
seeming inability to see upcoming recessions, even when he is right in
the middle of them. Again, what does the record show?
Alan Greenspan was the Chairman of Gerald Ford's Council of Economic
Advisers. I understand that he is the author of the famous WIN button.
Those of us who started our political careers about that time remember
the button: WIN, Whip Inflation Now. Everybody wore those. President
Ford heeded Alan Greenspan's advice as he derailed job-creation
measures and our Nation plunged into a recession.
We need to focus on Mr. Greenspan's time as Chairman of the Council
of Economic Advisers in 1974 and 1975. It was clearly a time of high
inflation, mainly caused by the first oil shock. But it was also a time
of sharp recession.
As the Nation was moving into recession, Alan Greenspan was,
reportedly favorable to tax increases as a means to fight inflation. He
urged President Ford to kill legislation designed to create jobs and
stimulate the economy.
A few months later, when the recession was fully in bloom, he changed
his mind and wanted tax cuts. But that was too late for many families,
as unemployment exploded from 5.4 percent in the summer of 1974,
passing 8 percent by June of 1975. I am not saying Alan Greenspan
caused the recession of 1974. What I am saying is he was so focused on
inflation he could not see it coming, and he proposed just the opposite
remedy, and that is what President Ford followed.
More recently, in 1990 and 1991, as Chairman of the Federal Reserve,
Alan Greenspan was very slow in reducing interest rates. Last month the
Wall Street Journal reported on the just-released Fed transcripts of
1990. Mr. President, the transcripts of Federal Reserve Board meetings
are kept secret for 5 years, and then they are released. We just got
the transcripts of the meetings back in 1990. On January 24, 1996, the
Wall Street Journal had an article by David Wessel, talking about those
transcripts. Here is what the article said.
Newly released transcripts of closed-door deliberations at
the Fed show that Mr. Greenspan didn't see a recession
unfolding until very late that year.
``There are forecasts of thunderstorms and everyone is
saying, `Well, the thunder has occurred and the lightning has
occurred and it's raining.' But nobody has stuck his hand out
the window,'' Mr. Greenspan told fellow Fed policymakers on
Oct. 2, 1990.
``And at the moment,'' he added, ``it isn't raining. . . .
The economy has not yet slipped into a recession.''
The recession, the official arbiters at the National Bureau
of Economic Research determined much later, began in July
1990, a month before Iraq invaded Kuwait.
And yet, by October, Mr. Greenspan still could not see that we were
in a recession.
There is more in the Wall Street Journal article I would like to
read, Mr. President, but I see others on the floor who would like to
speak. It talks about the meetings that were held in 1990 and 1991,
when we were clearly in a recession. Yet, Mr. Greenspan could not see
it.
``By December 18,'' almost 6 months after the recession started,
``Mr. Greenspan finally had enough data to conclude that a recession--
then nearly 5 months old--had begun.'' Again, quotes from his minutes.
``We have severe recessionary pressures,'' he told the Open
Market Committee,'' but recessions always end.
``At some point,'' he said confidently, ``we're going to
come out of this.''
He was right, the recession officially ended in March 1991.
Mr. President, I ask unanimous consent this entire January 24, 1996
Wall Street Journal article be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Jan. 24, 1996.]
Economy--Even the Fed's Greenspan Is Fallible When Trying To Predict a
Recession
(By David Wessel)
Washington.--Federal Reserve Chairman Alan Greenspan, often
caricatured as a dour pessimist, didn't see the gathering
storm clouds when he peered into his crystal ball in 1990.
Newly released transcripts of closed-door deliberations at
the Fed show that Mr. Greenspan didn't see a recession
unfolding until very late that year.
``There are forecasts of thunderstorms and everyone is
saying, `Well, the thunder has occurred and the lightning has
occurred and it's raining.' But nobody has stuck his hand out
the window,'' Mr. Greenspan told fellow Fed policymakers on
Oct. 2, 1990.
``And at the moment,'' he added, ``it isn't raining. . . .
The economy has not yet slipped into a recession.''
The recession, the official arbiters at the National Bureau
of Economic Research determined much later, began in July
1990, a month before Iraq invaded Kuwait.
The Fed cut short-term interest rates one-quarter
percentage point in July 1990, explaining the move as a one-
time attempt to offset the effects of a credit crunch. But
despite concerns expressed inside and outside the Fed about
the weakening economy, Mr. Greenspan resisted cutting rates
again until Oct. 29, 1990, after Congress and President Bush
agreed on a deficit-reduction accord. That quarter-point rate
cut was followed by three more of the same size before the
end of the year.
At the time, the Fed was criticized by some--and by many in
the months that followed--for responding too sluggishly to a
deteriorating economy. But in public comments, Mr. Greenspan
has been reluctant to confess he erred, given the information
available to him at the time.
The transcripts, released yesterday after the customary
delay of five years, show that the Fed was contemplating
interest rate increases for much of the earlier part of 1990.
By summer, signs that a credit crunch was hurting the
economy proliferated. For that reason, Mr. Greenspan
persuaded the Fed to cut interest rates by \1/4\-percentage
point. Still, in early July, he told Fed officials that the
reluctance of businesses and consumers to borrow and bankers
to lend, ``which I believe historically would almost
always have dumped us into a recession, failed to do so. .
. .''
Although other Fed officials were worried about the
economy, they didn't anticipate a recession either. ``It's
clear to me the economy is weaker than as projected,'' Fed
governor David Mullins said in July, ``but there are no
compelling signs that we are headed for a recession.''
At a pivotal meeting on Aug. 21, however, there was growing
sentiment for cutting interest rates to stimulate the
economy, but also concern about the inflationary pressures
created by rising oil prices. With Mr. Greenspan's blessing,
the Fed agreed that interest rate cuts were likely soon.
But the chairman, backed by Fed staff economists, continued
to resist the notion that the U.S. had entered a recession.
``I think there are several things we can stipulate with some
degree of certainty,'' he told the Fed at the Aug. 21
meeting, ``namely that those who argue that we are already in
[[Page S1273]]
a recession . . . are reasonably certain to be wrong.''
They weren't wrong, of course. But Mr. Greenspan argued
that there was little the Fed could do to help the economy
because everything hinged on oil prices. ``I would suspect at
this point,'' the chairman said, ``that the Pentagon has more
policymaking clout than we do because it's fairly obvious
looking around the world that if oil [prices] go up and oil
[production] comes down, that will have profound effects. . .
.''
Although Mr. Greenspan had the leeway to cut rates sooner,
he waited until Congress approved a deficit-reduction accord
in October. Even then, Fed economists remained optimistic
about the economy. ``Incoming data . . . have not provided
clear-cut indications that we are headed toward even a mild
recession,'' chief Fed forecaster Michael Prell told
officials in October, three months after the recession had
begun.
By mid-November, the Fed staff was losing confidence in its
sunny forecast. ``The signals of a downturn still are
limited,'' Mr. Prell told officials, ``but there certainly
are some now.'' Mr. Mullins, then Fed vice chairman, no
longer was mincing words. ``I think we have a recessionary
psychology in full bloom,'' he declared.
But even as Mr. Greenspan told Fed officials in a telephone
conference call on Dec. 7 that he had just cut short-term
interest rates to help stimulate the weak economy, he sounded
skeptical that it had slid into recession. New factory orders
still weren't showing the typical recession pattern, he
argued, though he continued to worry about damage from the
credit crunch.
By Dec. 18, Mr. Greenspan finally had enough data to
conclude that a recession--then nearly five months old--had
begun. ``We have severe recessionary pressures,'' he told the
Open Market committee. ``But recessions always end.''
``At some point,'' he said confidently, ``we're going to
come out of this.''
He was right. The recession officially ended in March 1991.
Mr. HARKIN. Mr. President, we face another period of high risk for
the economy to plunge into recession. Do we want Alan Greenspan, whose
main focus has always been on inflation, to be in charge of Federal
Reserve policy? I think the answer is clearly no.
There are two vacancies on the Federal Reserve Board. As I said
earlier, the President wanted to appoint Felix Rohaytn to one of those
positions, making him Vice Chairman of the Board. Mr. Rohaytn is a man
with an extremely distinguished career. Most notably, he is credited as
the guiding hand that led New York City from the edge of default and
economic ruin back to health.
I remember that debate. I was in the House of Representatives at the
time. I represented a very rural district from Iowa. I listened to Mr.
Rohaytn at the time as he made his case for the New York City bailout,
as it was called, and for the Federal Government and for the Congress
to assist in that process. It was not in my best interests,
representing a rural district, to vote for New York City. In fact, I
took some pretty bad political hits for doing so. But I believed it was
the right thing to do.
Congress passed it. New York City was able to pay its bills and avoid
default. It solved many of its problems with a growth policy initiated
by Felix Rohaytn.
He believes in growth. I find it hard to believe that anyone would
want to oppose his nomination. This is particularly true when the
discussion was to have him as a counterweight to Alan Greenspan's
orientation to focus on inflation; to have, as I understand it, with
the present one, to have a debate about the policy of the Fed. But
opposition from some on the other side of the aisle has, frankly,
killed the nomination of Felix Rohaytn.
President Clinton said last Friday that we need a debate within the
Federal Reserve to see if the economy can grow faster than the
conventional wisdom of a 2.5 percent average, without triggering
inflation. We need that debate. That debate will not take place under
Alan Greenspan.
The question of taking the Federal Reserve's heavy hand of high
interest rates off the throttle of our economy is crucial to the long-
term growth of our Nation. But to not even allow an appointment to move
forward, of Mr. Rohaytn, so we can engender that debate, start that
debate, is absolutely wrong.
As I said in my remarks last week, Mr. Greenspan's feet are firmly
planted in the past. Mr. Greenspan's focus is not on average, hard-
working Americans. It is not on our families in the middle-income
brackets of America. It is not on the manufacturing sector that has to
invest and create the kind of climate that will employ people and let
wages go up. No, Mr. Greenspan's focus is not there. His focus is some
phantom inflation out there, and as long as inflation can be kept at
the lowest possible position all is right with the world in Mr.
Greenspan's view. But as we have said in the past, Mr. President, it is
not just inflation that we have to be concerned about. We have to be
concerned about unemployment and economic growth. And Mr. Greenspan is
not concerned about either one of those.
So, again, Mr. President, I call upon President Clinton to pick
someone else to be Chairman of the Federal Reserve Board, someone who
has a concept of growth and what growth will mean to our economy and
the incomes of average Americans. We can have a debate this year. I
think we will have it. I hope it will happen in the Presidential races.
I hope that we have it in all of the Senate and House races which are
up this year--about what the proper rate of growth ought to be in this
country.
Should it be 2.5 percent? Should it be 2 percent, or can we
reasonably expect to grow at a faster rate? I happen to come down on
the side of progrowth. I believe our economy has all of the
underpinnings to grow at least 3.5 percent a year. I might even make
the argument that it can grow faster than that without triggering
inflation.
We are truly in a global economy. Markets abroad can send in goods to
this country, and even services, to keep any kind of inflation under
control and under check. Rising wages will not push up inflation
because the rising wages will just barely keep up with the rising
productivity of American workers. Our American workers are more
productive than ever before. Yet, their wages are not keeping up with
their productivity. If we let wages go up a little bit, it will kind of
keep up with productivity. That means people have a little bit more
money to go out and buy some goods. That means that our economy will
grow.
We are not having that debate. We can have that debate. As I said, I
hope we do have it in the Presidential races, and I hope we have it in
all of our races this year. But if we have an individual in charge of
the Federal Reserve who believes that growth cannot be above 2 or 2.5
percent, you can have all of the debates in the world, because the
Federal Reserve is independent and they are under Mr. Greenspan's
control to throttle down on that economy. We will see a no-growth
policy from the Federal Reserve regardless of what we might say in our
individual campaigns, or what we in the Senate or the House might want
to do in the future.
So, Mr. President, I think it is unfortunate that the debate about
the policies of the Fed and about the leadership of the Fed is not
undergoing more scrutiny than it is in our news media today. We are all
wrapped up, I know, in the New Hampshire primary, and before that in
the Iowa caucuses--who is ahead? Who is behind? --and a flat tax, and
all the other stuff. Yet, the single most powerful position in America
that has to do with our economy, what our future is going to be like,
what our kids' future is going to be like, what our incomes and wages
and job possibilities are going to be like, no one is talking about it.
Thank God that Mortimer Zuckerman at least wrote an editorial in U.S.
News & World Report. You see little about it in the Washington Post and
newspapers around the country. Everyone just assumes that Mr. Greenspan
is going to be renominated and take the position. I do not make that
assumption. And if Mr. Greenspan is in fact renominated by the
President, he will come here for hearings.
I intend, if that is the case in the coming weeks, to delve more into
Mr. Greenspan's background and his philosophy and what he has done in
the past, and why his past actions should warrant a no vote on the
Senate floor for his reconfirmation, if in fact the President
renominates him.
So I say--not a warning, simply as a statement of fact--that this is
one Senator who is not going to allow Mr. Greenspan, if he is
renominated, to sail through here without any debate. I intend to make
it an issue, and I intend to talk about it and talk about his
stewardship and to talk about his no-growth policies, because I think
it is that important for our economy and for our country.
[[Page S1274]]
Mr. President, I yield the floor.
Mr. LEVIN addressed the Chair.
The PRESIDING OFFICER. The Senator from Michigan.
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