[Congressional Record Volume 142, Number 87 (Thursday, June 13, 1996)]
[Senate]
[Pages S6197-S6213]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




NOMINATION OF ALAN GREENSPAN, OF NEW YORK, TO BE CHAIRMAN OF THE BOARD 
               OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

  The PRESIDING OFFICER. Under the previous order, the Senate will 
proceed to the nomination of Alan Greenspan, to be Chairman of the 
Federal Reserve System. The clerk will report the nomination.
  The bill clerk read the nomination of Alan Greenspan, of New York, to 
be Chairman of the Board of Governors of the Federal Reserve System for 
a term of 4 years.
  The PRESIDING OFFICER (Mr. Kempthorne). Under the previous order, 
time is equally divided under the control of Senator D'Amato and 
Senator Harkin. Senator Harkin is recognized.
  Mr. HARKIN. Mr. President, finally we have gotten to the nomination 
of Alan Greenspan to be Chairman of the Federal Reserve Board. I have 
been waiting for several months for this opportunity, to have the 
opportunity to debate not just the nomination but what this nomination 
means for the American people.
  I am very pleased that we finally have a reasonable opportunity to 
debate this nomination, the nomination of the most important 
Presidential nomination to come before this Congress, the nomination of 
Alan Greenspan to serve as Chairman of the Federal Reserve System. I 
have been pushing for this debate for months, and I want to thank the 
Republican and Democratic leaders for scheduling this 3-day debate.
  This debate about Chairman Greenspan's policies and their impact on 
our economy, about how we can get our economy to grow faster, about how 
we can create more jobs and raise incomes, zeros in on the most 
important issues that we face.
  Before we get into substance, I want to be clear about one thing. 
This issue has never been about personalities. It is about policy. It 
is about making sure that this body gives thorough consideration to the 
nomination of the Chairman of the Federal Reserve System, the single 
most important economic decisionmaker in our land.
  Over the course of today and tomorrow and next Thursday, I and others 
on our side hope to cover at least the following areas.
  First, we want to talk about a policy of growth versus a policy of no 
growth that has been prevalent at the Fed for the last several years 
and that is prevalent today. We wish to talk about the record of Alan 
Greenspan. I will go into his record at some length. Why? Because he 
has been Chairman of the Fed now for two terms.
  I think it is legitimate for us to ask: Has his stewardship, has his 
running of the Federal Reserve, been such that we, the Congress and the 
Senate, should reward him with another 4-year term? We would ask that 
of any person nominated by the President to fill an important position. 
We certainly should ask it of Alan Greenspan and look at his record.
  Third, we hope to talk about the impact on our budget and what we do 
here over the next several years and the impact on our economy of 
decisions made by the Federal Reserve Board, especially the Open Market 
Committee.
  Fourth, a recent GAO study that recently came out in preliminary 
form--the final version of that, I guess, will be out next Thursday--I 
believe raises substantial questions about how the Federal Reserve 
System is operating. Let us also be clear about another thing, Mr. 
President. The Federal Reserve Board is a creature of Congress.
  Yes, it is independent, and I believe it should be independent, but 
it is not a separate branch of Government enshrined in the 
Constitution. It is not like the judiciary or like the executive branch 
or the legislative branch. It is, in whole, a creature of the U.S. 
Congress. As such, it must be responsive to the Congress, responsive to 
the American people through Congress. I believe it is our duty to 
examine closely the policies of the Federal Reserve and to suggest 
through the legislative process changes that we may wish to make in the 
Federal Reserve System.
  I will be talking about one thing later, for example, the fact that 
the minutes of the Federal Open Market Committee are held secret for 5 
years. Why 5 years? Maybe there is a legitimate reason to keep them 
withheld for a period of time, but certainly not 5 years. I think that 
needs to be reexamined. Maybe 1 year, but not 5 years. Having said 
that, I will say we have gone back in the minutes of 5 years, 8 years, 
and 10 years ago and looked at the minutes, that quite frankly revealed 
some pretty interesting comments by the nominee now before the Senate. 
We will be talking about that at some length later, also. Those are the 
items we wish to cover in this debate.
  Again, I want to thank both the Republican and Democratic leaders for 
working this out. It is something that is going to take some time 
because this is a complex subject, but, I believe, a very important 
subject, one that really ought to command the attention not only of the 
Senate, but of the American people.
  The real point, I believe here, Mr. President, is to start a national 
dialog and to deliberate and not simply rubberstamp this important 
nomination, as well as other nominations to the Federal Reserve. The 
Chairman is the single most important. Again, I think that is our duty 
and our obligation. Let me say I consider this debate that we begin 
today a victory for this body and a victory for the American people. So 
we did not just rubberstamp and put someone through of this importance 
without raising serious policy questions about the Federal Reserve and 
how it is operated.

[[Page S6198]]

  Mr. President, raising the living standards and real wages of 
ordinary Americans stands as our primary economic challenge. The policy 
of the Federal Reserve under Chairman Greenspan has stood in the way. 
Under current law, the Federal Reserve is obligated to conduct a 
balanced monetary policy, so as to reconcile reasonable price stability 
with full employment and strong, stable, economic growth, and balance. 
But under the Greenspan Fed, job growth and the living standards of 
average Americans have been sacrificed in the blind pursuit of 
inflation control. The Greenspan Fed has raised interest rates not when 
inflation was knocking at the door or threatening, but when there was 
not even any specter of inflation.
  In 1994, in the midst of six straight rate increases, Chairman 
Greenspan himself acknowledged there was no evidence of rising 
inflation. Mr. President, I raise a lot of eyebrows at a lot of 
meetings when I talk about the Fed and why I wanted to have this 
debate. When I tell people, Mr. President, in 1 year, from February 
1994 to February 1995, that Alan Greenspan raised interest rates 100 
percent, people look at me like I arrived from another planet. They 
say, ``That is impossible.'' It is true. Look at the record. The 
Federal funds rate went from 3 percent in February 1994 to 6 percent in 
1995, a 100-percent increase in 1 year, with no inflation threatening. 
I will have more to say about that later. Since that time, it has only 
come down three-quarters of a point. Again, no inflation threatening. I 
believe that is leading this country to an economy where we see more 
and more millionaires every month, but average working families are 
stuck in a rut. They are working harder, spouses are working, and yet 
they are not getting ahead. I will have more data on that as we go 
through the debate in terms of what wage increases have been in the 
last few months, several months, last couple of years, what prices have 
done, to show the average working family is not only not getting ahead, 
they are falling behind in this great economy. Our stores are chock 
full of goods, and yet for some reason, the American family is not 
getting ahead.

  One of the reasons they are not getting ahead is because their debt 
load is too great. We hear a lot of talk around here about cutting 
taxes, because the American people feel they are overburdened with 
taxes. They do and they are. I submit there is another burden that they 
are carrying that is weighing them down, and that is the burden of debt 
and the high interest rates that they are paying. There is no reason 
for those high interest rates now. Again, I intend to go into this in 
great depth over the next few days. Mr. President, 100-percent increase 
in interest rates in 1 year, and they are still there.
  Mr. President, the decisions of a Fed Chairman touch every pocketbook 
and every family budget in America. The decisions of this Chairman have 
cost American families in lost wages and lost opportunities. The 
Greenspan Fed has stifled economic growth and the incomes of average 
Americans. Interest rates have been kept artificially high, and middle-
class families and businesses have been forced to pay the price. It is 
time for the Federal Reserve to pursue a more balanced policy based on 
raising economic growth and increasing jobs alongside continued 
vigilance against inflation.
  America at this point in our history ought to have a forward-looking 
Fed Chairman who recognizes the importance of expanding opportunities 
for our economy and our people in today's global market. We do not live 
in the 1970's. We have changed considerably since that time. We need 
strong leadership, committed to higher growth and incomes, fuller 
employment, and lower, more stable interest rates to improve the 
quality of life for average Americans. We have not gotten that with 
Alan Greenspan. There is what I call a common thread, Mr. President, in 
the thinking and the actions, and the policies of Mr. Greenspan over 
the years. It did not start yesterday. It will not end tomorrow or next 
week.
  Ripe from his days as Chairman of the Counsel of Economic Advisers 
under President Ford, until today, Mr. Greenspan has consistently shown 
the same two tendencies, as evidenced by the public record. First, he 
often misjudges the signs of an oncoming recession. Second, he does not 
act decisively enough to pull the economy out of recession because of 
an inordinate fear of inflation.
  Again, I will discuss both of these issues in greater detail 
throughout my remarks. Let me ask unanimous consent to have printed in 
the Record at this point, Mr. President, a guest editorial that was in 
the Investor's Business Daily, May 1, 1996. It is headlined 
``Greenspan's Rotten Record,'' by Mr. Don Hays. I do not know Mr. Hays.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

           [From the Investor's Business Daily, May 1, 1996]

                       Greenspan's Rotten Record

                             (By Don Hays)

       We may have an exciting new contrary indicator: Alan 
     Greenspan's predictions. Our search of the record has never 
     found him to be right about what the economy, inflation or 
     interest rates were going to do.
       We could go back further, but let's begin with a much-noted 
     1981 speech. As a private and well-connected economist, 
     Greenspan declared that inflation would not decline anytime 
     soon. Whoops--inflation was about to drop from 12% a year 
     down to 4%.
       In 1982, he wrote a letter of commendation for Charles 
     Keating. He also made an impassioned plea to Congress, asking 
     for more freedom for the savings and loan industry. Years 
     later, the S&Ls went bust at great cost to the taxpayers. 
     Keating wound up in jail.
       The same year, Greenspan's published economic forecast said 
     bond yields would fall \1/4\% from the previous year-end 
     level. In fact, they fell 3\1/2\%.
       But the drop in inflation was only temporary, he argued in 
     May 1983. The extraordinary Volcker-induced inflation calm, 
     he insisted, was about to end. In fact, inflation stayed 
     quite steady at 4% through 1987 and the end of the Volcker 
     regime.
       Also in 1983, Greenspan said long-term interest rates would 
     increase 20 basis points. This proved to be his best forecast 
     ever: Rates did rise--but by 1%, not the meager 0.2% he 
     predicted.
       At the start of 1984, he forecast that for the next three 
     years, bond yields would rise from 5 to 55 basis points. They 
     actually dropped each year, from 123 to 199 basis points.
       Perhaps because he spent more time schmoozing the halls of 
     the White House and Congress than he did in his office, in 
     1987 Greenspan was chosen to be chairman of the Federal 
     Reserve Board. He promptly got in a contest with the 
     Bundesbank to see who could raise interest rates faster, and 
     also squabbled flagrantly with Treasury Secretary James 
     Baker. Some would argue that the conditions fostered by these 
     conflicts ultimately let to the October 1987 stock market 
     crash.
       Greenspan answered the crash with a flood of monetary 
     easing. But by mid-88, he was right back to the battle, 
     raising the fed funds level from 6% to 9\3/8\% by mid 1980.
       He seemed to think this famine-feast-famine was just the 
     thing for the economy. In February 1990, he told Congress the 
     economic weakness had stopped. In fact, it continued to 
     weaken, and a recession began in August.
       On top of his chaotic monetary reversals, he launched a 
     regulatory war. In 1990-91, he bought the claim that banks 
     held too many real estate loans. In concert with Treasury, he 
     sent swat teams of auditors through the banking system, 
     totally wrecking banks sentiment to loan.
       As a result, when Greenspan tried to drive the economy away 
     from the ditch he had steered it into in 1992 and 1993, he 
     found the vehicle extremely sluggish, unresponsive to the 
     lower fed funds rate. He had to ratchet them down until he'd 
     achieved the steepest yield curve in history. With short-term 
     rates at 3% and the long bond up close to 8%, Orange County 
     and many corporations and hedge funds leveraged their bond 
     positions to the hilt.
       Let's jump ahead to a more recent example. In 1995, a sales 
     slump moved auto dealers to offer the biggest rebates in 
     history to tempt consumers. In September, Greenspan saw the 
     temporary hike in auto sales in his rear-view mirror--and 
     declared that his monetary policy and the economy were right 
     on track. So he refused to lower interest rates. That 
     Christmas was the weakest in at least four years. Judging by 
     the bellwether Wal-Mart earnings, it could be argued that it 
     was the weakest in 25 years.
       Greenspan's rear-view mirror finally cleared up in late 
     December, with the economy about to drive once again into the 
     ditch. He reversed course, cutting interest rates by \1/4\% 
     in December and again in January.
       It looks like we can go in a direction always opposite to 
     Greenspan's current message and look like an economic genius.
       So why did Republicans leave President Clinton no choice 
     but to reappoint Greenspan? Maybe they thought Clinton should 
     have to suffer the same election-year treatment the Fed chief 
     had dished out to GOP presidents. More likely, they are just 
     more proof of his amazing ability to mesmerize the herd--
     despite a record that has virtually never been right.

  Mr. HARKIN. I wanted to read a few of the lines from this editorial.

       We may have an exciting new contrary indicator: Alan 
     Greenspan's predictions. Our

[[Page S6199]]

     search of the record has never found him to be right about 
     what the economy, inflation or interest rates were going to 
     do.
       We could go back further back, but let's begin with a much 
     noted-1981 speech. As a private and well-connected economist, 
     Greenspan declared that inflation would not decline any time 
     soon. Whoops, inflation was about to drop from 12 percent a 
     year down to 4 percent.
       In 1982 he wrote a letter of commendation for Charles 
     Keating. He also made an impassioned plea to Congress, asking 
     for more freedom for the savings and loan industry. Years 
     later, the S&L's went bust at great cost to the taxpayers. 
     Keating wound up in jail.
       The same year, Mr. Greenspan's published economic forecasts 
     said bond yields would fall one-quarter of a percent from the 
     previous year-end level. In fact, they fell 3\1/2\ percent.
       But the drop in inflation was only temporary, he argued in 
     May of 1983. The extraordinary Volcker-induced inflation 
     calm, he insisted, was about to end. In fact, inflation 
     stayed quite steady at 4 percent through 1987 and the end of 
     the Volcker regime.
       Also in 1983, Mr. Greenspan said long-term interest rates 
     would increase 20 basis points. This proved to be his best 
     forecast ever: Rates did rise--but by 1 percent, not the 
     meager .2 percent that he predicted.
       At the start of 1984, he forecast that for the next 3 years 
     bond yields would rise from 5 to 55 basis points.

  Listen to this. At the start of 1984, he forecast that for the next 3 
years bond yields would rise from 5 to 55 basis points. They actually 
dropped each year from 123 to 199 basis points.
  Well, the article goes on. I will have more to say about this 
article. I do not know the author of the article, but he correctly, I 
think, captured the record of Mr. Greenspan.
  Again, I want to talk about this because the bottom line is that 
Chairman Greenspan has this long history of focusing solely on 
inflation to such an extent that all focus on expanding our economy has 
been lost.
  So what do we have today? We have a mindset at the Fed that 2-percent 
growth is acceptable--2 percent--that the economy cannot grow any 
faster; maybe 2.5, but that is getting close to the limits, but that we 
cannot have the 3-percent growth of the 1970's or the 4 percent growth 
of the 1960's. That is the mindset at the Fed.
  Mr. President, I believe we ought to do more to promote stronger 
economic growth, and at the very least we should not put our economy in 
a harness when there is such a tremendous potential for growth in 
America today. Saying that America can grow at 2 or 2.5 percent is like 
saying that we are going to accept a C average when we know we can do a 
B-plus or an A. I would not let my kids get by with that, and neither 
would you, and neither would anyone else. We should not let America get 
harnessed in these shackles when all of the indications are out there 
that, with a better monetary policy at the Fed, our manufacturing 
sector will expand, we will get new plant and new equipment, we will 
have some wage growth for average working families that will not be 
inflationary, and our farmers will be able to have a better deal, 
because they borrow a lot of money, and especially our small main 
street businesses. They are the ones in our main streets of our small 
towns that have to borrow money at higher rates of interest. They need 
a break, too. It is small businesses that employ most of the people, 
the ones that are getting the new jobs out there. They should not be 
shackled by this low-growth mentality that we see evidenced by the 
Chairman of the Fed.
  I urged President Clinton to appoint someone with a greater 
orientation toward economic growth, someone with a greater concern for 
the need to increase the incomes of average Americans, and someone who 
would strive toward keeping the unemployment low.
  There is a constant flow of articles written about relatively minor 
changes in tax policy or in the amount of spending for a number of 
relatively trivial Federal programs. Yet, the questions of our monetary 
policy and what we do about the supply of money and interest rates are 
just not being written about or discussed. That is one of the reasons I 
took the position which I did when this nomination came to the Senate 
back in March--that we needed articles written about him, that we 
needed voices heard around the country to start talking about the 
monetary policy of the Fed, to bring it out of the shadows and into the 
sunlight. We have seen more and more articles and more and more 
economists speaking out and business people speaking out saying that we 
ought to have a better growth policy at the Fed.
  Because of the huge deficits run up in the 1980's to the present, 
fiscal policy changes in the amount of Government spending and taxes 
have become pretty ineffective in our efforts to stimulate the economy 
during poor economic times. We cannot afford to increase the deficit 
even when we are entering a recession. One of the reasons, I feel, for 
reaching a balanced budget and then to perhaps run a small surplus is 
so that we can restore this capability--this capability of the Federal 
Government to be able to respond to recessions in a meaningful manner. 
So with such a huge deficit and high debt load, we cannot do that. We 
need to get to that balanced budget and reduce the debt load of the 
United States so that we can begin to invest more in our 
infrastructure. I do not mean just our physical infrastructure; I mean 
our human infrastructure such as education.

  This dependence that we have today on monetary policy and the extent 
that we have any control over it whatsoever is set by the Federal 
Reserve System. There is little doubt that the Chairman of the Federal 
Reserve and the policies he espouses are crucial to our economy.
  What will be the balance between our concerns for inflation and our 
concern about economic growth and unemployment? Rising interest rates 
mean a tremendous downward pressure causing the economy to slow. Higher 
interest rates mean higher costs of doing business, or running a farm. 
It means smaller profits. It means buying a home or a car is more 
difficult for working families. If you have an adjustable rate 
mortgage, as more and more people do these days, it means a bigger 
chunk of money will be going to the mortgage and less money will be 
available to your family for other needs like education. It also means 
we have rising interest rates; high interest rates. It means more 
unemployed people and the social unrest and harm that this causes.
  When we talk about family values, few things are as destructive to a 
family as unemployment. It strains marriages, causes divorces, and our 
children suffer. This stricture on our monetary policy also means fewer 
pay increases and a lower standard of living even for those who do not 
lose their jobs. People ask a lot of times, and I read articles, about 
why in America today with our seemingly wonderful economy that the 
stores are full of goods, and prices in most cases are pretty decent, 
why is it that there seems to be this unrest among the American people? 
Mr. President, it was there in 1992. It was there in 1994, and it is 
still there in 1996. It can all be summed up by saying that the average 
working families are stagnant in their incomes. Their wages are not 
increasing as fast as prices. They are incurring more and more of a 
debt load and paying higher and higher interest rates for the money 
they borrow. I believe this is leading to great social unrest and will 
continue to lead to great social unrest unless we have a change in 
monetary policy at the Fed.
  Federal Reserve policy has a considerable impact on the health of the 
economy, the level of unemployment, and the ability of average 
Americans to improve their incomes.
  So I am happy to say that I have seen some increase in the number of 
substantive articles in this area over the past few months. I believe 
that is one of the benefits of the delay that we have had. I hope that 
we see more articles in the future.
  Mr. President, Mr. Greenspan has had a long history in key economic 
positions; as chairman of the Council of Economic Advisers under 
President Ford, and as Chairman of the Federal Reserve since 1987. He 
is a known quantity. He is, I believe, proud of his reputation as a so-
called inflation hawk. By that I mean he consistently emphasizes the 
need to fight inflation. Unfortunately, his policies seem cold to the 
needs of families to see a little more income come in and to not lose 
their job. I am not saying he does not care. I am just saying that his 
orientation toward fighting inflation is, in my view, almost obsessive. 
It seems to blind him to the need to react to signs of recession or to 
the societal inequities that his policies lead to.
  Mr. President, the current law of the land is that the Federal 
Reserve is to

[[Page S6200]]

balance concerns about inflation on the one side and full employment 
and production on the other. These goals are in law, placed in law by 
the Full Employment and Balanced Growth Act of 1978. It is still the 
law of the land.

  Prior to the 1978 act, I understand there was no specific mention of 
inflation in the law at all. It was not in the Employment Act of 1946 
or laws prior to that, going all the way to the founding law of the 
Federal Reserve in 1913.
  Now Mr. Greenspan wants to overturn that balance. He actually 
supports the concept of eliminating the requirement that the Federal 
Reserve consider the need for full employment and production. He wants 
to focus solely on the goal of very low inflation. That is not a 
balanced policy, in my view, and I think we need, at this point in our 
history, a Federal Reserve Chairman with more balance.
  Mr. President, I now want to get back to looking at the results of 
some of Mr. Greenspan's policies at the Federal Reserve and what have 
been the results of his policies during his tenure at the Federal 
Reserve System. I have a series of charts and some other things I would 
like to refer to here at this point in time.
  Let us take a look, first, at this chart. This is, ``Economic 
Performance Under Greenspan.'' We have compared the years 1959 through 
1987, in aggregate, versus his tenure at the Fed from 1987 to the 
present. We have different indices here. We have: GDP, real GDP, income 
per capita, payroll jobs, and productivity. The green bar represents 
the pre-Greenspan years. The orange bar depicts the Greenspan years.
  Let us look at real GDP. During the years, cumulative years--and 
there were some that were pretty bad in there, too. There were some 
good and some bad. But during the years prior to Mr. Greenspan, real 
GDP averaged 3.4 percent per year. That is from 1959. The only reason 
we picked 1959 is because we changed the way we calculate the GDP. 
Those figures only go back to 1959. GDP averaged 3.4 percent. Under Mr. 
Greenspan, it has only averaged 2.2 percent growth, in real GDP.
  Let us look at per capita income. The average prior to Mr. 
Greenspan's tenure, 2.5 percent growth in per capita income; under Mr. 
Greenspan, 1.2 percent average growth in per capita income.
  Let us look at payroll jobs, growth of jobs, new jobs. Prior to Mr. 
Greenspan, an annual average of 2.4 percent growth in new jobs; with 
Mr. Greenspan, 1.7 percent growth in real jobs.
  But this is one of the most telling of all, and that is the last bar 
on this graph. It has to do with productivity. Productivity prior to 
Mr. Greenspan averaged 2.3 percent. Under him, it has averaged 1.1 
percent. That is crucial. It is through productivity growth that we get 
our ability to increase incomes of people with little inflation risk.
  I suppose there are some who say there are other reasons for this. 
That may be true that there are other factors that influence this, but 
I believe that in each one of these, the key, let us say the one domino 
that you push that knocks over all the rest, is the actions taken by 
the Federal Reserve in each one of these areas, because it has to do 
with the monetary policy and what our monetary policy is.
  I would like to turn to another chart, which was in an article 
written by Rosanne Cahn. I will read parts of that article. This 
article was in a publication, issued by CS First Boston. This is an 
economic treatise put out by CS First Boston, May 31, 1996, by Ms. 
Rosanne Cahn. Again, I do not know Ms. Cahn. Let me read some of this 
before I turn to the chart, because it will tell you what this chart 
shows. Ms. Kahn writes, in the May 31, 1996, CS First Boston report on 
the economy, ``Grow Is Not a Four-Letter Word.''

       The Federal Reserve acts like it's wrong for the economy to 
     grow at a reasonable rate. The bond market, conditioned by a 
     stern parent, deteriorates so rapidly in response to strong 
     growth that it may not even be necessary for the Fed to raise 
     short-term rates anymore. Like a child catching itself in a 
     naughty deed, it punishes itself by sitting in the corner in 
     advance of a parent's reprimand.
       Between 1950 and 1989, U.S. annual growth averaged 3.6 
     percent, with one-third of the years above 4 percent. The 
     1990's, at a 1.8 percent average annual rate, have been the 
     slowest 6-year period since 1950.

  We wonder why there is unrest around America?

       The immediate post-war recession and the beginning of the 
     Great Depression were the only 6-year periods with worse 
     records since 1929. The rate that rocked the bond market this 
     year was first published at 2.8 percent. . . .

  That was first quarter. I remember when it came out, oh, my gosh, a 
huge surge in growth, 2.8 percent. Later on we found out that it had to 
be revised down to 2.3 percent. Ms. Cahn asked, ``Can't we grow faster 
without jacking up bond yields by a percentage point?'' These are not 
this Senator's words. These are words written by Rosanne Cahn in this 
article.

       Chairman Alan Greenspan's record on growth is the worst of 
     all post-war Fed Chairmen, with no meaningful progress on 
     inflation.

  Maybe, Mr. Greenspan argued, we have not had growth because we have 
had great progress on inflation. Well, that is not so. As shown, growth 
during his leadership has been, as I pointed out on the earlier chart, 
a paltry 2.2 percent--right down here, real GDP growth, 2.2 percent, 
with inflation in the year before he took over at 4.1 percent and 
inflation averaging 3.2 percent.
  Paul Volcker, right before him, real GDP growth, 2.5 percent, kind of 
paltry but a little bit better than Greenspan's. But look what Mr. 
Volcker did with inflation. You can say, ``Yeah, he didn't have much 
growth,'' but look at inflation. The year before he came in, inflation 
was 13.2 percent. He brought it down to 6.2 percent during his term. He 
cut it in half.
  If you go back through, you can see the same thing. What has happened 
is in each of these cases--then you see here the real higher GDP growth 
rates during the other terms--what happened is that Mr. Greenspan 
really has not cut inflation by that much, but he has stifled the 
economy with low growth.
  So, if we are going to be suffering with low growth, well, inflation 
4.1, we should probably be down to zero inflation. We are not. So, 
again, we are suffering low growth without any real attack on inflation 
and no real headway made there at all.
  Ms. Cahn goes on to say:

       Some would assert that the U.S. economy's rate of expansion 
     is constrained by its maturity. That argument has been made 
     throughout history.

  I particularly like this part.

       For example, after the invention of the wheel, cavepeople 
     presumably thought that there was nothing more they needed. 
     Today, penetration of cellular phones and home computers is 
     low, so buying them should keep consumers busy until the next 
     new products/services are invented.
       By some measure, there's not much wrong with the U.S. 
     economy. For example, full employment has been achieved 
     according to some experts. Why quibble over one percent? 
     Anyone who is willing to give up a percentage point per year 
     of income growth for the next six years can stop reading now. 
     Multiply that by 100 million households and it adds up to 
     real money.
       Other wonderful things happen with a strong economy. The 
     Federal budget deficit shrinks . . . For example, if growth 
     were 1 percentage point per year faster for the next 6 years, 
     that would reduce the deficit by $120 billion, according to 
     Congressional Budget Office (CBO) estimates, or bring it 
     close to balance.
       Households' debt problems evaporate if incomes grow without 
     new debt being added. Income distribution disparities might 
     or might not narrow, depending on structural factors behind 
     the higher growth. However, the poor would certainly become 
     less poor as the economy expanded rapidly.
       So what is the problem? Why not go for growth?

  Ms. Cahn goes on to say:

       Prices are determined by the intersection of supply and 
     demand. As demand gets closer to supply, inflation heats up. 
     Inflation is bad because it allegedly causes distortions in 
     the economy, and eventually accelerates enough to destabilize 
     the economy. Most problems caused by inflation are infeasible 
     to quantify; many are subtle or hidden. Therefore, no one has 
     taken a stab at measuring the costs of inflation. However, 
     adults who lived through the 1970s and early-1980s recognize 
     double-digit inflation imposes serious burdens on the U.S. 
     economy.
       Without quantifying the cost of inflation, it is impossible 
     to determine the rational policy choice between inflation and 
     growth.
       Besides, no one knows what number to put on full resource 
     utilization, though many will argue vigorously for or against 
     a specific one. In 1993 most analysts contend that NAIRU 
     (non-accelerating inflation rate of unemployment) was above 
     6 percent; now some say 6 percent and many say 5\1/2\ 
     percent. In mid-1960s, debate focused on 5 percent, 4\1/2\ 
     percent and 4 percent.
       The policy dilemma is compounded by the long lag between 
     when the economy reaches full employment and when wage 
     inflation picks up.

[[Page S6201]]

       Under such uncertainty, what is a wise monetary policymaker 
     to do? We'll never know, because the Feds' anti-inflationary 
     fervor is more religious than intellectual.
       Even if the above difficulties are serious, perhaps there 
     is a more favorable inflation/employment trade-off than the 
     Fed will allow, without taking too much risk in the area of 
     uncertainty.

  I think what Ms. Cahn basically has said here is that you have to 
have a balance, you have to have a balance between caution on inflation 
and making sure that we have adequate growth, and to just have this 
almost religious fervor against inflation can send us into a tailspin 
in terms of real GDP growth per capita income and the well-being of 
working Americans.
  Mr. President, I want to talk just a minute more about NAIRU, the 
nonaccelerating inflation rate of unemployment, and what that means. A 
lot of people say, ``Well, we can't have lower unemployment because 
that will push wages up and that will cause inflation.'' Maybe that 
might have been true in the sixties, and it may have been true in the 
seventies, but we live in a different global economy today that a 
lesser unemployment rate and concurrently some wage increases for hard-
working Americans can be offset.
  We are in a global market. If they push too high, obviously 
businesses will tend to take their jobs offshore. Likewise, if the 
price of goods gets too high because the supply and demand is getting 
too close, well, then, because of the global economy, more goods can 
come in from overseas. So we do not have the kind of economic mix that 
we had in the sixties and seventies.
  I might add one other thing. We did not have in those years either 
the kind of mass marketing and mass wholesaling that we have today, 
like the Wal-Mart syndrome that we have in America today. That, too, 
acts as a buffer, as a damper on the push on inflation if, in fact, 
supply and demand gets too close.
  I now want to turn to a couple of articles by Mr. Felix Rohatyn. The 
first appeared in Time magazine in May, May 20, 1996. Mr. Rohatyn is a 
well-respected investment banker, perhaps the best kind of an 
economist, not one who lives in an ivory tower but one who is out there 
in the real world and has been very successful in what he does.
  I first met Mr. Rohatyn over 20 years ago. Actually it has been 21 
years ago, I think, when I was a Member of the House of 
Representatives. I represented a very rural district in Iowa, and that 
was about the time when New York City needed some help from the Federal 
Government in order to avoid defaulting in its financial obligations. I 
did not have much interest in that. In fact, I was predisposed to vote 
against the so-called bailout of New York City.
  Then Mr. Rohatyn--I do not know what his position was at the time--
came down to speak to us on behalf of the city government of New York 
City at the time. For a very then-young freshman Member of the House of 
Representatives who was very much predisposed to vote against a bailout 
of New York City, I listened with great attention to what Mr. Rohatyn 
had to say about New York, why it was in the position it was in, how it 
was going to get out, why it was in the best interest of our country to 
pass the New York City bailout bill and how New York would pay back 
every dime on the dollar and how it would lead to greater growth in the 
future for that city.
  I voted for the New York City bailout. It probably was not the 
smartest thing for a Congressman from a rural district in Iowa to do, 
but I did, and I defended it.
  It turns out he was right and we were right to do what we did at that 
time. So I have had a great deal of respect for Mr. Rohatyn over all 
those years, because I felt he had a commonsense, hands-on judgment of 
really what was happening in the marketplace. I believe he understands 
economics very well, but he understands it both in the theoretical 
aspect and in the actual aspect.
  The one thing I have always admired about Mr. Rohatyn is that he has 
always believed that America can do better, that we can grow better and 
not be just obsessed with the fear of inflation.
  Anyway on May 20, in Time magazine Mr. Rohatyn wrote the following--I 
will not read it all, but I think there are some passages in here I 
want to read for the Record. The title is ``Fear of Inflation Is 
Stifling the Nation. An outdated obsession is depriving us of greater 
wealth.''
  Mr. Rohatyn writes, on May 20, not even a month ago--

       As recently as March, most observers were concerned that 
     the economy might be headed for recession. Many expected the 
     Federal Reserve to lower interest rates. Suddenly the great 
     concern is that the economy may be growing too fast. Earlier 
     this month, the Commerce Department reported that the economy 
     grew at a rate of 2.8% during the first quarter of the year. 
     The bond and stock markets treated this very good news as if 
     it were an unwelcome visitor, and declined sharply. Fickle 
     behavior in financial markets is nothing new, but this latest 
     episode illustrates a deeper problem.
       It has become an article of faith among policymakers and on 
     Wall Street that if the economy grows at an annual rate above 
     2% or 2\1/2\%, inflation will rise, perhaps uncontrollably. 
     As illustrated by recent events, such conventional wisdom has 
     become almost a self-fulfilling limitation. When growth rises 
     above this level, investors, spooked by a belief that the 
     Federal Reserve will soon be ``forced'' to raise short-term 
     interest rates in order to prevent an outbreak of inflation, 
     rush to sell bonds. This pushes long-term interest rates up. 
     The result is that prospects for future growth are dampened.

  And he points out parenthetically--``(And should the Fed do nothing, 
bondholders sell because they fear the central bank is no longer 
vigilant against inflation.)''

       The irony is that these economic statistics, which so 
     frightened the markets, actually tell us that higher growth 
     is possible without inflation. The real rate of inflation for 
     the first quarter was 2.1%, with no sign of any upward 
     pressure; actual growth was understated because of the 
     General Motors strike and the winter blizzard. And remember, 
     inflation statistics are generally believed to be overstated 
     at least 0.5%.

  So perhaps the real rate of inflation was not 2.1 percent. It could 
have been closer to about 1.5 or 1.6 percent.

       What the first-quarter results make clearer is that the 
     economy can grow more than 3% while holding real inflation 
     below 2%. The same can be said about unemployment. The latest 
     unemployment figures came in at 5.4%; that's well below the 
     6% unemployment figure that is supposed to trigger inflation 
     through demands for higher wages, according to the standard 
     view.

  That is the NAIRU view.

     . . . This view fails to take into account the forces of 
     global competition. American workers no longer compete for 
     jobs only with one another, but with workers worldwide, and 
     that tends to dampen wage demands at home. Wage inflation is 
     not a real threat, but we keep treating it as such.
       Sure, one quarter isn't a trend, but there is nothing in 
     these numbers to provoke fear of inflation; on the contrary, 
     they should have been the basis for satisfaction and the 
     determination to do better.

  I guess that is what I like about Mr. Rohatyn. He believes we can do 
better, that a C average is not good enough for America.

     The conventional wisdom, however, is so embedded in the 
     financial community that the National Economic Council 
     chairman, Laura D'Andrea Tyson, felt understandably compelled 
     to reassure the markets by announcing that the 
     Administration's growth forecast for the year was unchanged 
     from its original 2.2%. It should not be necessary to tell 
     Wall Street that the economy isn't as good as it looks.

  Perhaps this is an argument I have with the Clinton administration. 
If they are accepting a 2.2-percent growth forecast, and if that is 
acceptable to the Clinton administration, all I can say is it is 
unacceptable to me, and it ought to be unacceptable to this country. We 
need a higher growth rate than that.
  Mr. Rohatyn goes on to say:

       There was a time when 2.8% would have been considered a 
     modest rate of growth; today it is considered dangerously 
     robust. The sad reality is that it is still below our real 
     needs. Many corporate leaders don't agree with this notion of 
     dragging the anchor just as soon as the economy has the wind 
     behind it. They understand how we can sustain high growth 
     based on the muscular productivity improvements they are 
     generating in their own businesses. In today's environment of 
     rapid technological innovation and international integration, 
     we should be willing to be bolder, both in fiscal and 
     monetary policy.
       Our excessive fear of inflation has a huge price: 
     stagnating wages for the vast majority of American workers, 
     the decline of our cities and the deepening of our social and 
     economic ills. Although there is no single answer to these 
     problems, increasing wealth and incomes hardly seems like a 
     bad way to start. As President Kennedy said, ``A rising tide 
     lifts all boats.'' The difference between then and now is 
     that the tide is not rising as fast--and it certainly is not 
     raising all boats equally. Without more growth we are simply

[[Page S6202]]

     setting the stage for a battle over the same pie.
       We need higher growth if we are to balance the budget 
     without unacceptable cuts to social programs, or without 
     letting our infrastructure crumble. Only a growing economy 
     lets us generate the revenues needed by the public sector 
     while reducing the tax burden on the private sector.
       The Clinton Administration is entitled to a great deal of 
     credit for cutting the federal deficit in half, while putting 
     the economy on a path of stable, moderate growth. But it's 
     time for Administration and congressional leaders to take 
     advantage of the current momentum to reach for a higher 
     level. It's also time for Wall Street and the Federal Reserve 
     to stop kicking up interest rates reflexively every time the 
     economy shows signs of momentum. The notion that we must 
     choose between growth and inflation is a false choice. Global 
     competition as well as new technologies has set new 
     parameters on every aspect of the economy. A 3%-to-3\1/2\% 
     growth rate is not only an achievable national objective; it 
     is an economic and social necessity.

   Mr. President, I ask unanimous consent that that article be printed 
in its entirety in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                   [From Time Magazine, May 20, 1996]

                         (By Felix G. Rohatyn)

  Fear of Inflation Is Stifling the Nation--An Outdated Obsession is 
                     Depriving Us of Greater Wealth

       As recently as March, most observers were concerned that 
     the economy might be headed for recession. Many expected the 
     Federal Reserve to lower interest rates. Suddenly the great 
     concern is that the economy may be growing too fast. Earlier 
     this month, the Commerce Department reported that the economy 
     grew at a rate of 2.8% during the first quarter of the year. 
     The bond and stock markets treated this very good news as if 
     it were an unwelcome visitor, and declined sharply. Fickle 
     behavior in financial markets is nothing new, but this latest 
     episode illustrates a deeper problem.
       It has become an article of faith among policymakers and on 
     Wall Street that if the economy grows at an annual rate above 
     2% or 2\1/2\%, inflation will rise, perhaps uncontrollably. 
     As illustrated by recent events, such conventional wisdom has 
     become almost a self-fulfilling limitation. When growth rises 
     above this level, investors, spooked by a belief that the 
     Federal Reserve will soon be ``forced'' to raise short-term 
     interest rates in order to prevent an outbreak of inflation, 
     rush to sell bonds. This pushes long-term interest rates up. 
     The result is that prospects for future growth are dampened. 
     (And should the Fed do nothing, bondholders sell because they 
     fear the central bank is no longer vigilant against 
     inflation.)
       The irony is that these economic statistics, which so 
     frightened the markets, actually tell us that higher growth 
     is possible without inflation. The real rate of inflation for 
     the first quarter was 2.1%, with no sign of any upward 
     pressure; actual growth was understated because of the 
     General Motors strike and the winter blizzard. And remember, 
     inflation statistics are generally believed to be overstated 
     at least 0.5%.
       What the first-quarter results make clearer is that the 
     economy can grow more than 3% while holding real inflation 
     below 2%. The same can be said about unemployment. The latest 
     unemployment figures came in at 5.4%; that's well below the 
     6% unemployment figure that is supposed to trigger inflation 
     through demands for higher wages, according to the standard 
     view. This view fails to take into account the forces of 
     global competition. American workers no longer compete for 
     jobs only with one another, but with workers worldwide, and 
     that tends to dampen wage demands at home. Wage inflation is 
     not a real threat, but we keep treating it as such.
       Sure, one quarter isn't a trend, but there is nothing in 
     these numbers to provoke fear of inflation; on the contrary, 
     they should have been the basis for satisfaction and the 
     determination to do better. The conventional wisdom, however, 
     is so embedded in the financial community that the National 
     Economic Council chairman, Laura D'Andrea Tyson, felt 
     understandably compelled to reassure the markets by 
     announcing that the Administration's growth forecast for the 
     year was unchanged from its original 2.2%. It should not be 
     necessary to tell Wall Street that the economy isn't as good 
     as it looks.
       There was a time when 2.8% would have been considered a 
     modest rate of growth; today it is considered dangerously 
     robust. The sad reality is that it is still below our real 
     needs. Many corporate leaders don't agree with this notion of 
     dragging the anchor just as soon as the economy has the wind 
     behind it. They understand how we can sustain high growth 
     based on the muscular productivity improvements they are 
     generating in their own businesses. In today's environment of 
     rapid technological innovation and international integration, 
     we should be willing to be bolder, both in fiscal and 
     monetary policy.
       Our excessive fear of inflation has a huge price: 
     stagnating wages for the vast majority of American workers, 
     the decline of our cities and the deepening of our social and 
     economic ills. Although there is no single answer to these 
     problems, increasing wealth and incomes hardly seems like a 
     bad way to start. As President Kennedy said, ``A rising tide 
     lifts all boats.'' The difference between then and now is 
     that the tide is not rising as fast--and it certainly is not 
     raising all boats equally. Without more growth we are simply 
     setting the stage for a battle over the same pie.
       We need higher growth if we are to balance the budget 
     without unacceptable cuts to social programs, or without 
     letting our infrastructure crumble. Only a growing economy 
     lets us generate the revenues needed by the public sector 
     while reducing the tax burden on the private sector.
       The Clinton Administration is entitled to a great deal of 
     credit for cutting the federal deficit in half, while putting 
     the economy on a path of stable, moderate growth. But it's 
     time for Administration and congressional leaders to take 
     advantage of the current momentum to reach for a higher 
     level. It's also time for Wall Street and the Federal Reserve 
     to stop kicking up interest rates reflexively every time the 
     economy shows signs of momentum. The notion that we must 
     choose between growth and inflation is a false choice. Global 
     competition as well as new technologies has set new 
     parameters on every aspect of the economy. A 3%-to-3\1/2\% 
     growth rate is not only an achievable national objective; it 
     is an economic and social necessity.

  Mr. HARKIN. There was another article by Mr. Rohatyn. This one was in 
the Wall Street Journal, last December. In this article he talks about 
the growth assumptions that we have made and the affect it has on 
policy. I just want to read a couple of parts of it. I will not read 
the whole article, but I ask unanimous consent that it be printed in 
the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

           [From the Asian Wall Street Journal, Dec. 7, 1995]

                         Cut and Be Prosperous

                         (By Felix G. Rohatyn)

       The current budget debate in the U.S. between the Clinton 
     administration and Congress has an air of unreality about it. 
     First, the debate is dominated by economic numbers to which 
     all sides cling with theological devotion, despite the lack 
     of any evidence that they correspond to events in the real 
     world. Second, the debate focuses on only one part of the 
     budget-balancing equation--controlling expenditures. Nobody 
     is talking about growing revenues by growing the economy, yet 
     this is certainly more important than any other part of the 
     budget equation.
       Start with the numbers. Both the President and Congress 
     have signed off on a seven-year goal to balance the budget. 
     But there is nothing magical about the number seven. Whether 
     the budget is balanced in seven years or six or eight has no 
     economic, financial or intellectual relevance; the financial 
     markets will react no differently if, ultimately, there is an 
     eight-year or even nine-year agreement. What is critical to 
     the markets is the certainty of the outcome. In the present 
     seven-year plan there is no certainty whatsoever; the only 
     certainty is that things will undoubtedly turn out 
     differently than the budget forecast.
       That's because the economic assumptions made by both sides 
     are faulty. The Congressional Budget Office forecast is for 
     2.3% annual growth for the seven-year period; the 
     administration's is for 2.5% annual growth. Both forecasts 
     are undoubtedly wrong. That is not their greatest sin, 
     however, because all forecasts are wrong, especially when 
     they go beyond next year. Their greatest sin is to accept, 
     and implicitly condemn, the U.S. to our present growth rate. 
     Despite Wall Street's love affair with slow growth, the vast 
     majority of the business community believes this to be far 
     short of the economy's real capacity for noninflationary 
     growth, as well as being inadequate to meet the nation's 
     private and public investment needs.
       What's pushing us toward accepting lower growth? Part of 
     the problem is faulty economic measurements. Both Federal 
     Reserve Chairman Alan Greenspan and a distinguished panel of 
     economists have said that U.S. actual inflation rate may be 
     more than 50% below the official measurement of the consumer 
     price index. This means inflation may be a less immediate 
     danger. Furthermore, the Bureau of Labor Statistics has 
     decided that the methodology of growth rate measurements is 
     faulty and needs to be revised downward. Once this is 
     adjusted, it may ease fears that we're growing ``too fast.''
       Another factor pushing the U.S. toward lower growth is 
     its foreign trade partners. In Western Europe, the goal of 
     a single European currency, requiring lower budget 
     deficits and lower debt, is given priority over growth and 
     employment in every country except Britian. Both Germany 
     and France, with inflation rates around 2% and 
     unemployment rates of 9% and 12% respectively, are running 
     deflationary policies of high interest rates together with 
     budgetary contraction. Japan is effectively in a no-
     growth, asset-deflation mode.
       I would be a tragic mistake for the U.S. to join the rest 
     of the developed world in a set of economic policies 
     combining low growth, high real interest rates and fiscal 
     contraction--the prescription seemingly favored by both 
     Congress and the White House. The net result of these 
     policies will not be balanced budgets but higher deficits and 
     serious social strains, because they will lead to less growth 
     and hence lower government revenues.

[[Page S6203]]

       Every major American social and economic problem requires 
     stronger economic growth for its solution. This includes 
     improvements in public education as well as increasing 
     private capital investment and savings; balancing the budget 
     and maintaining a social safety net; improving the economic 
     conditions in the big cities and reducing racial tensions as 
     a result. The economic and social pressures of global 
     capitalism can be offset only by higher rates of economic 
     growth. Even when global competition was less severe and 
     social problems less daunting, the U.S. did not generate 
     sufficient jobs and government revenues at less than 3% to 
     3\1/2\% annual growth in gross domestic product.
       There is only one explanation for the U.S. government's 
     reluctance to adopt a higher growth objective: The inordinate 
     fear of inflation resulting from higher growth. The view that 
     the economy's capacity for noninflationary growth in limited 
     to 2\1/2\% is strongly supported by the financial community, 
     the Treasury and the Federal Reserve, all rightly anxious to 
     protect the securities and currency markets. But business 
     leaders strongly believe that we can achieve higher growth 
     with little risk of higher inflation. The latest economic 
     statistics seem to confirm this: The last quarter saw 4.2% 
     growth and less than 2% inflation. It is totally appropriate 
     to fight inflation; it is counterproductive to limit economic 
     growth unnecessarily.
       It is obviously not possible, overnight, to try to raise 
     the growth rate without raising the fear of renewed 
     inflation; global capital markets are very nervous, and 
     maintaining a strong dollar is fundamental to U.S. 
     prosperity. But a number of policy changes should be 
     considered--but aren't at the moment.
       First, the U.S.'s European and Japanese partners should be 
     persuaded to set a parallel course and coordinate lower 
     interest rates while promoting domestic growth policies of 
     their own. At home, the U.S. should consider tax reform to 
     promote investment and savings. It should make appropriate 
     increases in public investment, even as it reduces the cost 
     of social programs and defense spending. It should make 
     improvements in public education an integral component of a 
     strategy of higher growth and higher productivity. Hard 
     money, higher rates of growth, low interest rates and low 
     inflation should be the economic platform.
       There will be obviously be vigorous differences between 
     Republicans and the administration about the tax and spending 
     policies needed to achieve these goals. However, since there 
     is no real argument any more about the goal of a balanced 
     budget let us, at least, agree that balance must be achieved 
     by higher growth and retrenchment. There is an excellent 
     precedent for this strategy: New York City's experience in 
     1975, when it teetered on the edge of bankruptcy. How did the 
     city balance its budget in five years and regain access to 
     the credit markets? Through a combination of rapid and 
     sustained economic growth, on the one hand, and, on the 
     other, year-by-year compliance with tough budget targets 
     enforced by an Emergency Financial Control Board.
       At the federal level, no new agency is needed--but a new 
     mechanism is required to keep the budget plan on track year 
     to year: First, the Congressional Budget Office would 
     determine the actual deficit, as opposed to the projected 
     one. Second, the President and the congressional leadership 
     would agree on measures to resolve differences between the 
     predicted deficit and the real one; this could include 
     additional spending cuts or new taxes, or a combination of 
     the two. This agreement would be subject to ratification by 
     Congress. Third, if no agreements was reached, automatic 
     across-the-board cuts in the budget (interest payments on the 
     debt alone would be exempt) would come into effect to comply 
     with the forecast. Of course, provisions would have to be 
     made to defer cuts in case of a serious recession or a 
     national emergency, but this plan would reassure financial 
     markets far more than any seven-year budget goal.
       As a final step, both the administrative and the 
     congressional Republicans should agree on an objective of at 
     least 3% annual growth to be reached in the next two or three 
     years. The difference between 2.3% and 2.5% growth over the 
     seven-year period is $475 billion of added revenues; the 
     difference between 2.5% and 3% is more than $1 trillion. 
     There are stakes worth fighting for. The national debate 
     should now focus on the most important issue facing America: 
     not whether, but how, to generate the growth that is adequate 
     to the country's needs.

  Mr. HARKIN. This was in the December 7, Asian Wall Street Journal.
  Mr. Rohatyn is talking about budget forecasts. Let me just start 
where he says:

       That's because the economic assumptions made by both sides 
     are faulty. The Congressional Budget Office forecast is for 
     2.3 percent annual growth for the seven-year period; the 
     administration's is for 2.5 percent annual growth. Both 
     forecasts are undoubtedly wrong. That is not their greatest 
     sin, however, because all forecasts are wrong, especially 
     when they go beyond next year. Their greatest sin is to 
     accept, and implicitly condemn, the United States to our 
     present growth rate.

  Let me repeat that. What Mr. Rohatyn said is that to forecast and to 
set our policies based upon 2.3 percent or 2.5 percent growth for 
several years, that is not the greatest sin, he says, he stated the 
greatest sin is to accept and implicitly condemn the United States to 
our present growth rate.

       Despite Wall Street's love affair with slow growth, the 
     vast majority of the business community believes this to be 
     far short of the economy's real capacity for noninflationary 
     growth, as well as being inadequate to meet the Nation's 
     private and public investment needs.

  Mr. Rohatyn goes on, he says:

       What is pushing us toward accepting lower growth? Part of 
     the problem is faulty economic measurements. Both Federal 
     Reserve Chairman Alan Greenspan and a distinguished panel of 
     economists have said that U.S. actual inflation rate may be 
     more than 50 percent below the official measurement of the 
     Consumer Price Index. This means inflation may be a less 
     immediate danger. Furthermore, the Bureau of Labor Statistics 
     has decided that the methodology of growth rate measurements 
     is faulty and needs to be revised downward. Once this is 
     adjusted it may ease fears that we're growing ``too fast.''

  Mr. Rohatyn goes on to say:

       It would be a tragic mistake for the U.S. to join the rest 
     of the developed world in a set of economic policies 
     combining low growth, high real interest rates, and fiscal 
     contraction--the prescription seemingly favored by both 
     Congress and the White House. The net result of these 
     policies will not be balanced budgets, but higher deficits 
     and serious social strains, because they will lead to less 
     growth, and hence lower Government revenues.
       Every major American social and economic problem requires 
     stronger economic growth for its solution. This includes 
     improvements in public education as well as increasing 
     private capital investment and savings; balancing the budget 
     and maintaining a social safety net; improving the economic 
     conditions in the big cities and reducing racial tensions as 
     a result. The economic and social pressures of global 
     capitalism can be offset only by higher rates of economic 
     growth. Even when global competition was less severe, and 
     social problems less daunting, the U.S. did not generate 
     sufficient jobs in Government revenues at less than 3 percent 
     to 3\1/2\ percent annual growth in gross domestic product.
       There is only one explanation, for the U.S. government's 
     reluctance to adopt a higher growth objective: the inordinate 
     fear of inflation resulting from higher growth. The view that 
     the economy's capacity for noninflationary growth is limited 
     to 2\1/2\ percent is strongly supported by the financial 
     community and the treasury and the Federal Reserve, all 
     rightly anxious to protect the securities and currency 
     markets. But business leaders strongly believe we can achieve 
     higher growth with little risk of higher inflation.
       It is totally appropriate to fight inflation. It is 
     counterproductive to limit economic growth unnecessarily.

  (Mr. THOMPSON assumed the chair.)
  Mr. HARKIN. Mr. President, I think Mr. Rohatyn, really in both those 
articles, has really outlined what our policy ought to be at the 
Federal Reserve. That is, a policy of balance. That is what he is 
arguing for. He is not saying, forget about inflation. He is saying, 
when there is no inflation, when the fear of inflation is low and 
inflation is way down, below 2 percent, we can take some risks for more 
growth.
  Like the story about the turtle that only makes progress when he 
sticks his head out from underneath the shell. Of course, he is most 
vulnerable at that point. The turtle could live his entire life closed 
up in a shell. He would not get very far, but he would be safe. Like 
the turtle, we have to stick our necks out once in a while for growth. 
If we see inflation coming, yes, then we can retreat. But to retreat 
before inflation is threatened is to condemn America to slow growth, is 
to condemn American families to low wages and high unemployment. It 
means that we will have a tougher time balancing our budget, or it 
means if we do want to balance the budget, we are going to cut very 
deeply into social safety net programs. We will cut into education, we 
will cut into health, we will cut into Medicare, and we will start 
cutting to balance the budget. That will exacerbate and make worse 
social unrest that we already see starting out there.
  We must have a policy of growth. The Federal Government cannot do it 
by itself. We have no magic here to do that. Yes, we can cut budgets, 
and we are. We can cut the deficit, and we are. We can streamline 
Government.
  I commend the Clinton administration for what it has done to 
streamline Government. It was the Clinton administration that started 
the reorganization of the Federal Government. It was President Clinton 
who suggested we trim the size of the Federal bureaucracy to its lowest 
point since John Kennedy was President.

[[Page S6204]]

  Yes, we can take those steps, and we are taking those steps, but 
unless we have growth in our economy, those cuts are going to get 
harder and harder in the future. It will be harder to make politically, 
but it will be harder on people with real needs, whether it is an 
elderly person who is ill or maybe an elderly person that needs heating 
oil in the wintertime and we do not have enough money to pay and to 
help them buy that heating oil to keep warm in the winter. It is a 
family that has a child that needs a Head Start Program and cannot get 
it because we do not have the money for it. We simply do not. Or maybe 
it is a young couple starting out, both of them are working, and they 
would like to save to buy a new home. They cannot to it because the 
interest rates are too high. That is what is ahead for us if we do not 
have growth in our economy.
  As I said, we have limited resources at our fingertips here in the 
Congress to do that. We cut the deficit, we cut the size of the Federal 
Government, we can streamline, but in the end it has to be the Federal 
Reserve and its monetary policy to reduce the interest rates that will 
allow the private sector to expand. By allowing the private sector to 
expand and grow with new plants and new equipment and, yes, wage growth 
for hard-working families, that will create the kind of revenues that 
the Federal Government takes in to help meet our obligations to those 
less fortunate.

  Mr. President, Rohatyn points out the increasing social unrest that 
will happen if we continue on with the tight money policy under Mr. 
Greenspan. Mr. President, I do think we should have monetary goals that 
allow for 3 percent, maybe 3\1/2\ percent growth, a percent higher than 
what we have. Of course, as I said, if it was achieved, we would see 
our revenues climb as profits and income increase, and many program 
costs would fall. Again, I commend President Clinton for the approaches 
he has taken to reduce the budget deficit and to reduce the size of the 
Government.
  Next, I want to discuss some of the recent news impacting on interest 
rates, how the perceptions of the Federal Reserve and its actions have 
shaped the market's reaction to the news, and why I believe Alan 
Greenspan's historic pattern of actions is not helpful for our economy 
to grow. I would like to know how approving his renomination and his 
hair-trigger reaction toward raising interest rates makes talk of a 
growing economy from a supply side tax cut totally impossible.
  There are those who say we need to have this big tax cut now, as if 
somehow this tax cut is going to lend itself to a supply side growth in 
our economy. But if you have high interest rates, unreasonably high 
interest rates, tight money policy, then that will not happen. Tax cuts 
will just simply go for higher interest payments. That is all they will 
go for. If you want to really get the economy moving, yes, you should 
get our rate of interest down, and then have targeted tax cuts to 
working families. That would really spur the economy. To do it without 
lowering interest rates is counterproductive.
  If the Federal Reserve is going to look at a reduction of revenue 
without immediate offsetting reductions in spending as inflationary, 
then interest rates are likely to increase and higher interest rates 
will send the economy into a dive, further exacerbating the deficit. In 
that environment, the ability to promote any kind of a supply side tax 
reduction that benefited the economy becomes highly suspect.
  One of the very strange things to most people who read the newspapers 
is how the bond and stock markets now tend to go down when there is 
significant good news about the economy as a whole, as I just read from 
a couple of articles. The reason is because they believe as soon as the 
economy gets better, interest rates will rise.
  Will they rise because of fear of inflation, or do they think they 
will rise because of a hair-trigger orientation toward raising interest 
rates at the Federal Reserve? I believe a very large component is the 
fear of the Federal Reserve increases in its interest rates and not the 
fear of inflation.
  I suppose Mr. Greenspan's supporters would say the answer is if the 
economy overheats, there will be a bottleneck in the economy, shortages 
of goods, the inability to deliver them on time, shortages in 
employees. This, of course, will result in higher prices for wages 
paid, and thus inflation. Inflation will increase and erode the value 
of long-term bonds. The bond market will therefore demand higher 
interest rates to slow the economy and reduce inflation, and clearly 
higher interest rates reduce consumer demands, increase business costs 
and lower profits.

  Under Mr. Greenspan's Federal Reserve, I believe there is a 
perception, cultivated by him, that he does have a hair trigger and if 
there is ever any early sign at all of any inflation, they will raise 
interest rates. Unfortunately, it is more than true. He may claim it 
calms the markets, but I think he is leading the charge to higher rates 
in a slower economy.
  Sometimes we have seen this hair trigger operate when signs of 
inflation are ephemeral, at best. The bonds and stock markets both 
initially hit the skids when the Bureau of Labor Statistics issued its 
report on May unemployment last Friday. What did the report say? Mr. 
President, 348,000 jobs were added to the payroll. In addition, there 
was an upward revision in the April employment figures by 163,000; 
about 500,000 additional jobs in America over a 2-month period. There 
was about 40,000 less than that because statistics counted higher for 
election day in many States, so we are talking about 460,000.
  There was a huge 549,000 increase in the work force in May. Half a 
million people wanted to get into the job market. They wanted to work 
in April. Only two-thirds found jobs.
  I hear people say, ``My gosh, look at all the new jobs we have 
created. We are up to 500,000 in a couple of months.'' But what they 
point out is that in May, there was a 549,000 increase in the work 
force, and what we found is that over that period of time, about 
460,000 new jobs.
  So only about two-thirds of the people looking for work found work. 
So, in actuality, the unemployment rate increased from 3.6 to 5.6 
percent in May. Again when you tell people that, they say, ``Wait a 
minute. I have been reading about all of these new jobs created.'' That 
is true. That is only one side of the ledger. You must look at the 
other side of the ledger and how many people are looking for work. This 
is about a third more looking for work than actually found jobs. So 
unemployment actually increased. With a fear that increased jobs will 
yield to bottlenecks, this news says there are a lot more people 
looking, providing competition for the growing number of job positions 
that become available.
  What about the direct measure of inflation--rising wages? We talked 
about unemployment; let us talk about wages. In the March figures 
released in April, wages increased by 7 cents. On Friday, the new 
figure said, after adjustments after the past 2 months, wages only 
increased by a penny an hour. The economy, they said, did very well in 
April. Generally, economists felt it was a pretty good month and a 
pretty good quarter of the year. There is a widely held view that the 
economy will not do as well in the second half.
  What is the problem with rising bond prices? It is the Federal 
Reserve. Everyone in the market understands Mr. Greenspan's character. 
So the 30-year Federal bond interest rate increased by 13 basis points 
last Friday largely on the bet that the Federal Reserve rate increase 
was on the way. We keep hearing that, at the next meeting of the 
Federal Open Market Committee, there is going to probably be an 
increase.
  First of all, unemployment actually went up. Rising wages is only 
about a penny an hour. Why? Yet, bond interest rates increased by 13 
basis points. Why is all of this important? It is important because, in 
the short term, the fear and the expectation of Federal Reserve rate 
hikes mean higher mortgage rates and other interest costs even before 
possible Federal Reserve action. If the Federal Reserve increases the 
interest rates, which in recent years is almost automatically followed 
by increases in the prime rates of banks, then the cost of doing 
business or operating a farm will increase. The cost to consumers who 
want to buy things increases.
  But the most important effect of Mr. Greenspan's Federal Reserve 
policy is it blocks faster economic growth. As I said, Mr. Greenspan 
talked about the

[[Page S6205]]

desirable growth at a bit over 2 percent a year. Many economists say 
that our economy could grow well over 3 percent, as Mr. Rohatyn does, 
without triggering higher inflation. Many say we could sustain that 
rate for a longer period of time.
  But I think it can be said with certainty, a 1-percent increase in 
growth for 1 year means an extra $75 billion added to the economy and 
the following year and each year thereafter. If we sustain that higher 
growth for 2 years, then we are talking about an extra $150 billion in 
the size of the economy per year; 3 years, $225 billion a year added; 4 
years--you get my point. What this would mean in cumulative effects to 
the economy is nothing short of startling.
  A larger economy means more in wages and a better quality of life for 
Americans. I believe it is worth a try. Mr. Rohatyn believes it is 
worth a try, and so do many, many economists. Especially business 
people think it is worth a try. I think we should allow the economy to 
grow at the strongest rate possible. Of course, this means we must 
lower interest rates.
  Again, is there a risk of inflation? Yes; not as great as the risk 
would have been 20 years ago in the 1970's. As I pointed out, we have a 
world market in goods, we have a world market in labor, and we have 
new, more massive retailing and discounting in America that we never 
had 20 years ago. Plus we have a large pool not only of unemployed but 
underemployed.
  That is another point that I am going to be talking about later. We 
can look at the unemployed figures. They say, ``Well, it is 5.6-percent 
unemployment. But there are a lot of people--and we all know it because 
we talked to our constituents--there are a lot of people out there who 
are underemployed. They have a job, but it is not the job they want, 
and it is not the job paying them the wage that their education and 
their abilities might otherwise argue for. But they are taking it 
because there is nothing else. It is not uncommon for a family with the 
husband working one or two jobs, the spouse, the wife, working one or 
two jobs, and one or more of the children working. Many of those second 
jobs are lower wage, many times minimum-wage, jobs. So there is, I 
think, a great deal of underemployment.
  So, if we were able to spur economic growth to buy new plants and 
equipment, new opportunities, I believe that a lot of the underutilized 
jobs would move to other sectors and a lot of the underemployed people 
would take those jobs. So again, it argues against any kind of 
tightness in the labor market that would argue for inflation. So, yes, 
there is a chance, there is a risk.
  As I said, it is like the turtle. The turtle never makes progress 
until it sticks its neck out. Of course, that is when it is most 
vulnerable. A turtle can spend its whole life clammed up in its shell, 
but it would never get anywhere. We can spend the rest of this century 
and a good portion of the early part of the next century clammed up in 
our shell, too, while other nations outstrip us, while other nations' 
growth rates exceed ours, and while we condemn our people to a lower 
standard of living. That is really what this is about.
  Some people say, ``Well, you mean to tell me it is all wrapped up in 
one person, Mr. Greenspan?'' My answer is, yes, a lot of it; not all of 
it, but a lot of it because of the power of the Federal Reserve 
Chairman and because of the monetary policy of the Federal Reserve.
  Some would say that cannot be true. Alan Greenspan does not want the 
economy to grow more quickly? Is that a fair statement? Mr. Greenspan 
does not believe that the risk of inflation is worth what could be 
substantial job growth and higher income. He has spent his entire 
professional life fighting for that view. I believe he is so oriented 
toward that view, blinded by that view, that he failed to act 
decisively to bring the U.S. economy out of two of the most serious 
recessions in the post-World War II era.
  In 1974, while chairman of President Ford's Council of Economic 
Advisers, and in 1990, as Chairman of the Federal Reserve, both times 
he failed to act decisively to bring the U.S. economy out of serious 
recessions. In February 1994, he started a series of seven interest-
rate increases with no real sense of inflation. Perhaps on the horizon 
there may have been a mirage of inflation sometime in the future.
  Last Thursday's Washington Post had an interesting article written by 
John Berry. It said the Federal Reserve officials did not intend to 
orchestrate a signal on the prior Wednesday, on May 29, that the Fed 
wanted to raise interest rates at their July 3 meeting. But we have 
seen a number of statements last week on exactly that point, a few days 
before the article. Some of those statements said that the Federal 
Reserve was not intending to raise rates, and inflation looks like it 
is under control; the economy is not going out of hand. But I note that 
the bond and stock markets did take some of the remarks made by Fed 
officials made on May 29 very seriously.

  Susan Phillips, a member of the board, and Al Brodous a member of a 
Richmond bank, indicated that they were seeing inflationary pressures 
in the economy. When the news came out that the 30-year bond moved up, 
stocks quickly dipped when the economists were heard on Wall Street. 
Speaking in Washington, according to the Wall Street Journal, Phillips 
was concerned about rising commodity prices and Brodous was concerned 
about the tightness in the labor market. On Friday, 2 days later, the 
30-year bond was still 13 basis points higher, affecting real people. 
Mortgage rates were also up sharply. The beginning of last week saw 
lots of statements of denial, and the culmination was John Berry's 
piece in the Washington Post, and the 30-year bond returned to near its 
prior level.
  My point in telling this is not to say that Fed officials purposely 
organized an effort to send a signal or not. That is not the point. It 
is to say that everyone in the market knows about Mr. Greenspan's hair 
trigger. If you are going to have large sums that will be invested in 
the bond market, that view is highly to your advantage. It keeps the 
chances of inflation way down. Unfortunately, it keeps the economy 
hobbling along and wages close to stagnant. What is good for 
bondholders is not necessarily always good for America, and not 
necessarily always good for the average American.

  At the end of last week the 30-year bond was about 15 basis points 
higher than it was a few days before. Mortgage rates went up. And, 
unfortunately, there is now a reasonable chance that the Federal 
Reserve might increase rates on July 3. That is all being bandied 
about. Again, why? What is there out there that would even cause 
someone to think that the Federal Reserve might raise interest rates? 
The labor market is not tight. There is no inflation inherently 
threatening at all. Yet they are talking about it.
  What was the truth, anyway--commodity prices? They have been stable 
for months. On the day Ms. Phillips made her comments, the IPC stood at 
253. A month before, at the end of April, it was around 256. This is 
the Index of Prices for Commodities. So how could that statement be 
made that there is a tightening in commodities when, in fact, the index 
came down three points, from 1 month to the other?
  Oil came down to about $20 a barrel from its peak of about $25 a 
couple of months ago. Oil prices are coming down, to the refinery. 
Unfortunately we have not seen much at the gas pump yet.
  So where is the climb in commodity prices? They are generally going 
down more than up.
  Let us look at the labor markets. Again, what do we see? Unemployment 
was up. Unemployment was up 5.4 percent for April, but unemployment has 
been in a range of 5.4 to 5.8 percent since October, 1994. And in 1994 
many at the Fed were saying that anything below 6-percent unemployment 
would likely cause higher inflation. Wrong. Perhaps, if we would not 
send interest rates skyrocketing, we might discover we could sustain 
strong growth without accelerating inflation, bringing unemployment 
down actually to 5 percent.
  In recent months the Help Wanted Index has also been low. This is a 
clear indication that employers are not having difficulty finding 
employees. A weak Help Wanted Index is something that might be expected 
in a slumping economy. More important, a weak Help Wanted Index is also 
one more indication that inflation is not threatening

[[Page S6206]]

because employers will not have to increase wages and benefits to 
attract employees. And we all know that employee wages and compensation 
are one of the greatest causes of inflation. So why the hair trigger? 
There is little reason, in my view, that fair-minded, balanced experts 
should want to raise interest rates at this time.
  Just over the last couple of days we have received some good news 
about inflation. The CPI went up by .3 percent, core CPI went up only 
.2 percent, producer prices went down .1 percent. Yet the airwaves have 
been all filled with talk that the Fed may raise rates. Why? Because of 
Mr. Greenspan's hair trigger.
  I would like to now go through some of Alan Greenspan's actions in 
the past concerning interest rates, that might explain the perceptions 
of the bond and stock markets.
  First I want to talk briefly about a constant called NAIRU. I 
referred to it earlier, the nonaccelerating inflation rate of 
unemployment. Under this concept, as unemployment falls below a certain 
point, bottlenecks occur because the country runs out of skilled 
employees. As a result, employers must begin to offer increased pay and 
greater benefits to attract employees. As a result of this, producers 
must raise their prices to keep pace with the increased costs of doing 
business. Thus, this leads to inflation.

  This model argues that if monetary policy is structured in such a way 
as to keep unemployment below its natural level, runaway inflation will 
result at an accelerating rate that could be reversed by only painfully 
high levels of unemployment. The conventional wisdom held by Mr. 
Greenspan is that the current natural rate of unemployment is around 6 
percent. I want to be as fair as I can. Mr. Greenspan said he has no 
specific rate in mind, that he just watches the details. But for a long 
time the word was that this NAIRU, if I can call it that, was at least 
6 percent. Below that rate, we would see escalating inflation. But 
unemployment went below 6 percent about 20 months ago and there is 
still no impact. Now the accountants are saying that NAIRU is maybe 5.8 
percent, or 5.5 percent.
  There was an interesting article by Patrice Hill earlier this month 
in the June 4 Washington Times on that point. I just wanted to read a 
little bit from that article. This was in the Washington Times dated 
June 4, by Patrice Hill.
       Is the Federal Reserve keeping unemployment unnecessarily 
     high and preventing more than a million workers from finding 
     jobs?
       A number of analysts say yes, the Fed may be depriving 
     workers because of a too-cautious belief that if it loosen 
     the money tap and lets the unemployment rate fall below its 
     current level of 5.4 percent, the would trigger wage and 
     price inflation.
       ``The Fed is probably shortchanging the economy,'' said 
     Maury Harris, chief economist with Paine Webber Inc. in New 
     York pointing to a succession of relatively inflation-free 
     economic reports.
       In the 1980's, inflation reared its ugly head when 
     unemployment dropped to between 5.5 and 6 percent, so the Fed 
     and many economists still see that level of unemployment as a 
     ``danger zone'' where inflation lurks. They fear the demand 
     for workers will start outstripping the number of people 
     seeking work, driving up wages, the cost of business, and 
     ultimately, fueling inflation.
       But Fed critics in Congress and in economic circles note 
     that unemployment has hovered in the 5.5 percent range for 
     two years now, with little sign of a pickup in wage growth or 
     inflation. In fact, ``wage stagnation'' is frequently singled 
     out as a problem.
       Mr. Harris and a growing number of prominent analysts say 
     unemployment could drop still further--to between 4 percent 
     and 5 percent--without triggering inflation. And that would 
     make life better for a lot of people--a one-point drop in 
     unemployment puts a little over a million back to work.

  Mr. President, I ask unanimous consent that article be printed at 
this point in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

               [From the Washington Times, June 4, 1996]

               Inflation-Wary Fed Costs Jobs, Critics Say

                           (By Patrice Hill)

       Is the Federal Reserve keeping unemployment unnecessarily 
     high and preventing more than a million workers from finding 
     jobs?
       A number of analysts say yes, the Fed may be depriving 
     workers because of a too-cautious belief that if it loosens 
     the money tap and lets the unemployment rate fall below its 
     current level of 5.4 percent, that would trigger wage and 
     price inflation.
       ``The Fed is probably shortchanging the economy,'' said 
     Maury Harris, chief economist with Paine Webber Inc. in New 
     York, pointing to a succession of relatively inflation-free 
     economic reports.
       In the 1980s, inflation reared its ugly head when 
     unemployment dropped to between 5.5 and 6 percent, so the Fed 
     and many economists still see that level of unemployment as a 
     ``danger zone'' where inflation lurks. They fear the demand 
     for workers will start outstripping the number of people 
     seeking work, driving up wages, the cost of business, and 
     ultimately, fueling inflation.
       But Fed critics in Congress and in economic circles note 
     that unemployment has hovered in the 5.5 percent range for 
     two years now, with little sign of a pickup in wage growth or 
     inflation. In fact, ``wage stagnation'' is frequently singled 
     out as a problem.
       Mr. Harris and a growing number of prominent analysts say 
     unemployment could drop still further--to between 4 percent 
     and 5 percent--without triggering inflation. And that would 
     make life better for a lot of people--a one-point drop in 
     unemployment puts a little over a million back to work.
       Their theory gives fuel to a handful of liberal senators 
     who have been holding up Alan Greenspan's nomination to 
     remain as Fed chairman, arguing that his unnecessarily high 
     interest rate policies have held back growth and employment.
       Mr. Harris said the Fed is just being cautious because 
     ``they don't want to take any chances of setting off 
     inflation'' after bringing it down to the lowest levels in 
     decades.
       He held out hope that as the Fed sees unemployment go down 
     gradually without igniting price increases, it may be more 
     content to sit on the sidelines and not raise short-term 
     interest rates.
       Mr. GREENSPAN, in appearances before Congress, insists that 
     the Fed is open to higher growth and employment and is not 
     targeting any specific unemployment rate such as 5.5 percent. 
     But he defends the Fed's decision to dramatically raise 
     interest rates in 1994 when unemployment fell below 6 
     percent, saying it was accompanied by a big pickup in 
     commodity prices.
       Some Fed members have been more straightforward about tying 
     the central bank's actions to the level of unemployment.
       ``The unemployment rate is about as low as you can expect 
     it to go without a worry of inflation,'' said Cathy Minehan, 
     the president of the Federal Reserve Bank of Boston, last 
     week, while admitting that inflation, as measured by the 
     Consumer Price Index, remains well-behaved.
       San Francisco reserve bank President Robert T. Parry has 
     told reporters that he believes the unemployment rate below 
     which inflation becomes a problem--in technical jargon known 
     as the ``non-accelerating inflation rate of unemployment''--
     is around 5.75 percent. He says the economy is already 
     operating in the inflation ``danger zone.''
       ``It would surprise me if `96 and `97 didn't show some 
     pickup'' in inflation, he said last week. ``It would probably 
     be wrong to think that the lack of influence of wage 
     pressures will continue indefinitely.''
       While many economists agree with the Fed, some say it has 
     not fully taken into account two factors that have increased 
     the economy's employment potential: the aging of Baby Boom 
     workers and the stiff, worldwide competition in trade that 
     has unfolded since the end of the Cold War.
       Mr. Harris and Ed Yardeni, chief economist with C.J. 
     Lawrence Inc. in New York, say the unprecedented trade 
     competition has held down prices and wages, while the aging 
     of the baby boom has brought more experience to the work 
     force and is driving down the unemployment rate.
       When the large baby boom generation was young and less 
     skilled in the 1970s and 1980s, they had a harder time 
     finding jobs, causing the unemployment rate to drift higher. 
     But now, the reverse may be happening, the analysts say.
       Mr. Harris points to the low, 4.5 percent unemployment rate 
     in the Midwest manufacturing belt--accompanied by low, 2.7 
     percent wage inflation--as evidence that unemployment 
     nationwide could drop further without setting off a wage-
     price inflation spiral.
       Mr. Yardeni notes that unemployment dropped as low as 4 
     percent in the 1960s without inflation. The same thing could 
     happen in the 1990s, but for different reasons, he said.
       ``The world has changed. The end of the Cold War is a major 
     shock'' that has brought with it a flood of trade and cheap 
     imported goods, but along with it the fierce competition that 
     has kept a lid on prices and wages, he said.
       David Wyss, economist with DRI/McGraw-Hill Inc. in Boston, 
     defended the Fed and dismissed as ``wishful thinking'' the 
     theory that unemployment could go much lower without 
     inflation.
       Some one-time factors have been aiding employers in holding 
     jobs costs down, he said, including a recent dramatic drop in 
     health care inflation, and recessions in Europe and Japan 
     that have held down worldwide demand and prices for raw 
     materials. Those helpful developments could soon subside, he 
     said.
  Mr. HARKIN. I just want to read one other part of that article. Ms. 
Hill said that:


[[Page S6207]]


       Mr. Greenspan, in appearances before Congress, insists that 
     the Fed is open to higher growth and employment and is not 
     targeting any specific unemployment rate such as 5.5 percent. 
     But he defends the Fed's decision to dramatically raise 
     interest rates in 1994 when unemployment fell below 6 
     percent, saying it was accompanied by a big pickup in 
     commodity prices.

                           *   *   *   *   *

       While many economists agree with the Fed, some say it has 
     not fully taken into account two factors that have increased 
     the economy's employment potential: the aging of Baby Boom 
     workers and the stiff, worldwide competition in trade that 
     has unfolded since the end of the Cold War.

  She quotes Mr. Ed Yardeni, chief economist with C.J. Lawrence, Inc., 
in New York who said:

       Mr. Yardeni notes that unemployment dropped as low as 4 
     percent in the 1960s without inflation. The same thing could 
     happen in the 1990s, but for different reasons, he said.

  So, again, I said at the outset of my comments, I think Mr. 
Greenspan's economic perceptions are locked in the 1960's and 1970's. 
And the world has changed dramatically since that point in time.
  So, let us say--let us assume that the floor on unemployment is not 
5.5 percent. Let us just say it is 5 percent, half a percent lower. The 
National Bureau of Economic Research, a distinguished group that is 
recognized as the arbiter of when recessions begin and end, recently 
published a working paper which might explain part of the problem. It 
is entitled, ``How Precise are Estimates of the Natural Rate of 
Unemployment,'' NAIRU.
  To explain this point I would like to use the hypothetical example of 
a political poll, which we are kind of all familiar with. For example, 
if a poll says that 60 percent of the American people believe x, it 
basically means that 60 percent plus or minus a certain percentage 
actually believe x. NAIRU, nonaccelerating inflation rate of 
unemployment, and other economic statistics, work the same way. So I 
was surprised to learn that the range of NAIRU is plus or minus 2.6 
percent of unemployment. That means that when NAIRU is assumed to be 
6.2 percent in 1990, the natural rate of unemployment is actually 
somewhere between 5.1 percent and 7.7 percent.
  I would like to point out that each one-tenth of one point of 
unemployment represents about 132,000 people who do not have a job, 
many of whom have families. What this means is that a Federal Reserve 
decision to tighten credit through higher interest rates to slow the 
economy down does a couple of things that impact Americans. Some become 
unemployed, more than would otherwise have become unemployed. Every 
tenth of a percent almost equals more than the entire working age 
population of the capital city of Iowa, Des Moines.
  Second, it keeps the cost of wages down. That is the real goal. 
Increased unemployment is an indirect goal, although it is not stated 
that way, but what they are really after is keeping wages from rising 
to prevent inflation. We must keep in mind, however, that employees' 
hourly wages have fallen in 1995 dollars from $12.85 in 1978 to $11.46 
per hour in 1995, a drop of 11 percent. And while that is happening, 
our productivity is going up. Not as much as it should. But 
productivity is, in fact, going up in our country at a time when wages 
are going down.

  So now we are told we have to keep tight reins on the economy or it 
will overheat and damage the economy. At what point will the economy 
overheat and damage our economy? Should we really be worried if 
unemployment comes down to 5 percent, 4.8, 4.6 or maybe even 4.5 
percent? Is there really any fear that that will cause inflation?
  There are many who do not believe so, and I happen to be one of 
those. I believe we can reduce the rate of unemployment in this 
country, provide for more jobs and better wages without increasing 
inflation.
  I guess the concern I have with Mr. Greenspan is he always seems to 
come down on one side of this debate, stopping inflation at any cost, 
and will not let the economy grow as it should.
  Mr. President, I said when I started my comments that I would at some 
point go over Mr. Greenspan's history, and I do want to do that, but I 
see in the Chamber the Senator from North Dakota, who has been a great 
leader in this effort to get a more reasonable balance at the Fed, who 
has been an eloquent spokesman for a more balanced policy and for lower 
rates of interest and for a growth in our economy. I see the Senator is 
present on the floor.
  At the conclusion of his remarks, or perhaps tomorrow, when we are in 
session tomorrow, I wish to trace for the record and for Senators and 
for the public Mr. Greenspan's record from the time that he was 
Chairman--well, I may even go back further when he was one of Ayn 
Rand's disciples in New York. I may even go back to that. But I want to 
trace his history from the time he was chairman of the Council of 
Economic Advisers through his private years, when he was private and he 
was stating what the economy would do, and to show also through this 
period of time as Chairman of the Fed how, quite frankly, Mr. Greenspan 
just simply has been wrong.
  I say that with no malice. I just say that is the record. I wish to 
trace that record in some detail in the hours and days that follow. I, 
again, see my colleague and again, as I say, one of the great spokesman 
for a better balance at the Fed and for more growth in our economy and 
one of the great fighters for small businesses and our farmers present 
on the floor.
  I yield whatever time he might consume.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. DORGAN. Mr. President, I thank very much the Senator from Iowa. I 
have listened to his comments. I know that he has taken some criticism 
for his position that there ought to be a debate about monetary policy 
here on the floor of the Senate. But I admire the fact that he will not 
back down. There are big economic interests out there who want to say 
to the Senator from Iowa, ``Back away from this, back down or else.''
  The Senator from Iowa has one of those stubborn streaks that says if 
something is right and it ought to be done, he is going to make sure it 
is done. I say to him I appreciate the fact he stood strong and said, 
``We demand an opportunity to debate on the floor of this Senate,'' 
something that is as important to every family and to our economy as 
this subject is.
  A century and a half ago, from barbershops to barrooms in this 
country, people would talk about interest rate policy and monetary 
policy. It was enormously important. In fact, if you study the two 
centuries of economic or financial history of this country, you find 
that there has always been a constant wrestling match between those who 
produce and those who finance production. Sometimes you go for a decade 
or two and the financiers have the upper hand. Then it switches and the 
producers have the upper hand. But always this tension and this 
wrestling back and forth for economic power.
  In 1913, we created something called the Federal Reserve Board. It 
was promised at the point of its creation not to become a central bank 
accountable to no one. It was promised that would not happen. Of 
course, what has happened at the end of this century is it is a strong 
central bank accountable to no one, serving its interests as it sees 
its interests in dealing with monetary policy and interest rates with 
respect to the American economy.

  I thought it would be helpful just to begin this discussion to put up 
on a poster board the Federal Reserve Board. Almost no one ever sees 
these folks. They are undoubtedly wonderful people. I have only met a 
few of them.
  This is Alan Greenspan, appointed in 1987. He has been in and out of 
the Federal Reserve System in the field of economics and doing 
consulting work, and so on, for many years.
  Let me say at the start, we are talking about confirming Alan 
Greenspan, Chairman of the Fed, for another term. I admire him, and I 
respect him. However, I fundamentally disagree with him about monetary 
policy and about his stewardship at the Fed. He knows I disagree with 
him, because we have had these discussions back and forth when I was on 
the Joint Economic Committee, when I was on the Ways and Means 
Committee in the House and in other venues. But because I disagree with 
him on interest rate policy, no one ought to interpret that to mean 
that I do not admire him. I do. I just think he is wrong.
  How? Alan Greenspan is the person who heads the Federal Reserve 
Board.

[[Page S6208]]

 He believes that America's unemployment really should not drop below 
5\1/2\ percent because that would cause us a lot of trouble. He also 
thinks that economic growth should really not go much above 2 or 2\1/2\ 
percent, because that would cause us trouble. He believes largely in a 
high-interest-rate, slow-economic-growth policy.
  It does not take great creativity to pursue a slow-growth economic 
policy. My Uncle Joe could do that. If I said, Look, our goal is to 
slow the American economy down, my Uncle Joe could slow it down, and he 
does not have a Ph.D. in economics. He has no experience at the Fed, 
but my uncle Joe could slow the economy down.
  My point is, the current Federal Reserve Board strategy, stemming 
from the Chairman, is a strategy that says, ``Let's keep economic 
growth rates in this country slow,'' because they believe that that 
represents the right balance in dealing with the kind of issues they 
ought to deal with, the twin economic goals of stable prices and full 
employment.
  The goal of price stability now is the overriding goal of the Fed, 
and the Fed will probably say, ``Well, we have cut inflation 5 years in 
a row, inflation is down and it continues to come down. Look at what a 
wonderful job we've done.'' And I say to them, my uncle Joe could have 
done that as well. Bringing inflation down was not your success. The 
global economy has reduced the rate of inflation. You don't see wages 
in America increasing; you see wages coming down.
  Why? Because two-thirds of the American work force are now competing 
with 2 to 3 billion other people halfway around the world, some of whom 
will work for 10 cents, 20 cents and a half dollar an hour. This global 
work force has put downward pressure on American wages. And as a 
result, too many families now are working for fewer wages or fewer 
dollars than they used to earn in the same job.
  So inflation is coming down, wages are coming down, and the Fed will 
say, ``Gee, look at what a great job we've done.'' I do not know that 
they ought to claim credit for lowering inflation when the global 
economy is what has resulted in lower wage rates in America.
  But I will say this: While they have been about whatever job it is 
they are doing, America has sustained a rate of economic growth that is 
simply anemic. This economy has the capacity of producing economic 
growth and new jobs and new opportunities at a much greater rate than 
now exists.
  Why does it not? Because, in my judgment, the Chairman and the 
current Federal Reserve Board see themselves as a set of human brake 
pads whose job it is to slow down the American economy.
  Let me read something from the National Association of Manufacturers. 
I sometimes agree and sometimes disagree with them. Jerry Jasinowski, 
who is the president of the NAM and a friend of mine, an awfully good 
thinker and author, writes the following, along with Dana Mead, who is 
chairman and chief executive officer of Tenneco. They coauthored a 
guest editorial in Investors' Business Daily. Let me read what he says:

       Whether it's balancing the budget, raising worker 
     compensation or paying for tax cuts or social and 
     environmental programs, the answer to most of our difficult 
     problems is higher economic growth. Raising economic growth 
     by a mere one-half of a percentage point would generate 
     nearly $200 billion in increased tax revenue over the next 8 
     years. Personal disposable income would be $180 billion 
     higher in 2003 than 1995, which brings us to one of the great 
     mysteries of the late 20th century: Why is the world's most 
     competitive economy restricting itself to economic growth 
     rates--

  Or he says ``anemic growth rates''--of 2 percent to 2.5 percent?
  That is the key question posed by the president of the National 
Association of Manufacturers. ``Why is the world's most competitive 
economy restricting itself to anemic growth rates of 2 percent to 2.5 
percent?''
  The answer, he says:

       The Federal Reserve Board. They all seem to buy--not only 
     the Fed, but the CBO, OMB, and the forecasters--the 
     prevailing wisdom that higher growth rates will trigger 
     inflation. That recalls Mark Twain's observation about the 
     cat who once sat on a hot stove. He'll never sit on a hot 
     stove again, but he'll never sit on a cold one either.

  This from a producer, the National Association of Manufacturers, and 
the chief executive officer of Tenneco, asking the question, why should 
we be content, as the most competitive economy in the world, with 2 to 
2\1/2\ percent rates of economic growth? We are content with that, or 
at least some are content with that, because that is what the Federal 
Reserve Board determines our economic growth rate will be.
  That is what the Federal Reserve Board has managed to do. They make 
interest rate decisions in secret. They do it in a closed room with the 
door shut, and with no debate that the American public can become a 
part of. There is no public discussion that represents any form of 
democratic notion at all. They do it in private.
  This is the dinosaur of public policy institutions. It is the only 
one left that is highly secretive, and does all of its business in 
secret. In fact, here are the Fed's Board of Governors.
  Then you have the presidents of the regional Reserve banks. They 
participate on a rotating basis, I believe five at a time. They join 
the Board of Governors in what is called an Open Market Committee. They 
decide what the interest rates will be. They vote in a closed room with 
the door closed. You and I are not a part of it. The American people 
are not a part of it. They vote.
  Who do the bank presidents report to? Who are they accountable to? 
Well, they come from the regional Fed banks, and they are accountable 
to their boards of directors. They are accountable to the boards of 
directors. Who are the boards of directors of these regional Fed banks? 
Bankers. So these folks come to Washington, DC, and in the Open Market 
Committee vote on interest rate policies. They have neither been 
appointed nor confirmed by Congress. There is no people's involvement 
or people's input here. They owe their job to their boards of 
directors, which are bankers.
  Now, what interests are they going to represent when they are in this 
closed room with the Board of Governors voting on interest rate issues? 
The interest of the money center banks, I think.
  The point I am making here is, this represents the closed system by 
which monetary policy is dealt with in this country. It is not 
democratic. It is not open. There are many imperfections in this system 
today.
  Would I suggest we get rid of it? No, I do not suggest that. I 
suggest we make some substantial changes. Do I believe we should give 
monetary policy to the Congress? No, I do not believe that either. 
Should monetary policy be part of the normal politics of this country? 
No; it is too important for that as well.
  But should it be closed off, isolated, insulated, and away from the 
view or input of the American people? Of course not. This is a 
dinosaur, one of the last remaining dinosaurs in our country. Change 
needs to occur with respect to the workings of the Federal Reserve 
Board. A little fresh air and a few rays of light creeping through the 
doors of the Federal Reserve Board would be good for this Board and 
good for this country.
  But that is not the issue. The Federal Reserve Board reform issue is 
not the issue today. Today's issue is the nomination of Chairman 
Greenspan for another term as Chairman of the Federal Reserve Board.
  About 2 weeks ago, there was a story in the Washington Post. They 
were talking about the political campaign that is now going on in this 
country--President Clinton and Senator Dole--and they were talking 
about the proposals for tax cuts that are ricocheting around and the 
proposition that Senator Dole may or may not propose some across-the-
board tax cuts.
  I thought it was interesting that the former CBO Director, Robert 
Reischauer, said something that relates to this discussion today. He 
said:

       Whether or not the supplysiders think cutting taxes will 
     make the economy grow faster does not really matter, said 
     former CBO Director Robert Reischauer, now of the Brookings 
     Institution. The Fed Chairman, Alan Greenspan, thinks the 
     economy can't grow faster than 2.2 percent a year without 
     triggering inflation. It is not going to happen.

  No matter what anyone thinks about monetary policy issues here in the 
Congress or what they try to do with respect to fiscal policy issues, 
if Alan Greenspan does not believe the economy should grow faster than 
2.2 percent, it is not going to happen, Mr. 

[[Page S6209]]

Reischauer alleges. Of course, he is absolutely correct.

  I will talk just a bit about what has happened in recent years. I 
will talk about the high interest rate policies now pursued by the 
Federal Reserve Board. I have a chart that shows the current Federal 
funds rate. That is the rate that the Federal Reserve Board sets by 
itself. It says, ``Here is what our rate is going to be.'' And all 
other interest rates come off of this rate, with the exception of long-
term rates, which are set by the market but are influenced by this.
  But the fact is, all other interest rates--credit cards, business 
loans, the prime rate--all follow the Federal funds rate. Historically, 
the Federal funds rate has been 1.77 percent above the rate of 
inflation. In other words, the rent that is incorporated in the Federal 
funds rate above the rate of inflation is 1.77 percent. These are very 
short-term funds, as you know. Since Chairman Greenspan came to the 
Fed, the average has been 2.18 percent, and the current rate is 2.32 
percent above inflation.
  In other words, all other interest rates in this country that 
virtually everyone pays--consumers and business men and women and 
farmers and others--is now higher than it should be because the Federal 
Reserve Board is keeping the current Federal funds rates much higher 
than in the past.
  Why are they doing that? Well, because I guess they fear, if they 
would cut the Federal funds rates, someone would believe they have 
given up their fight against inflation. Despite the fact that the Fed 
has said that they see no troubling signs of inflation over the 
horizon. They believe the long-term market in which you have a spikeup 
of long-term rates, or had a spikeup of long-term rates, the assessment 
by the market is wrong.
  I asked the Fed, ``If you believe that, if you believe there is not a 
credible long-term threat of inflation or a credible threat of 
inflation just over the horizon, why, then, are you deliberately 
keeping the Federal funds rates at a level that is historically a fair 
amount higher than it has been in the past and, therefore, causing 
every American to be taxed--yes, taxed--with an interest charge that 
they did not have any part in being able to debate or talk about or 
wonder about whether they should be paying?'' It is a tax in the form 
of an interest charge extracted from every single American family, 
higher than it should be, because the Federal Reserve, sitting behind 
their closed doors, decides they want higher interest rates. Presumably 
they want higher interest rates because they want to continue to dampen 
the rate of economic growth.
  If you said to Mr. Greenspan or many of the other members of the Fed, 
why can't we have more economic growth, which would produce more jobs 
at better pay and more expansion and more opportunity in our country? 
Why cannot we do better than 2 or 2.5 percent? They would probably say 
to us, well, it is because of inflation. If we have higher economic 
growth, then we overheat the economy and get more inflation. ``Look 
what we have done with inflation,'' they would say. ``Look at what has 
happened in 5 years. Inflation has come down, down, down, down, down, 
all the way down to 2.5 percent.'' Because Alan Greenspan has said 
publicly he thinks the CPI overstates the rate of inflation by as much 
as 1 or 1.5 percent, one would conclude that in his mind inflation is 
somewhere around 1.5 percent or 1 percent in our country today.
  So, they say, we cannot have a healthy rate of economic growth. We 
cannot have robust expansion of new jobs in our country because they 
are worried about inflation, despite the fact that inflation has come 
down for 5 straight years, not because of the Fed but because the 
global economy has put downward pressure on wages by and large, in my 
judgment. But that is what the Fed would say: No, we cannot have more 
robust economic growth because we are worried about inflation.
  Well, I am worried about inflation as well. I think we ought to fight 
inflation. But I think the twin economic goals that we ought to be 
pursuing in monetary policy are not only stable prices, but also full 
employment, which means a robust growing economy. To focus on one 
exclusively, which I think is what is happening at the Fed, I think is 
unfair to the American people.

  Let me provide a record of the economic performance of this country 
under this monetary policy scheme. I should say that not only monetary 
policy affects our economic performance; so does our fiscal policy. I 
am not one who wants to pat Congress on the back for its wonderful 
fiscal policy. I understand that we have also caused problems. But let 
us talk a little about what is happening with respect to the economy.
  Real gross domestic product. Prior to the Greenspan years--I think it 
is about a 20-year period--the average was 3.4 percent of economic 
growth per year; Greenspan years, only 2.2 percent. This difference is 
substantial. This might look like a bar chart to most people. This 
looks like unemployment to many people. This looks like families 
without jobs. This looks like lost opportunity. This looks like lower 
income. This looks like kids coming out of college that cannot find 
work to some people. But this difference is substantial. A 3.4-percent 
average yearly rate of economic growth prior to Mr. Greenspan going to 
the Federal Reserve Board and 2.2 percent following, and since and 
during.
  Income per capita; 2.5 percent to 1.3 percent. I should note this is 
not wages. Wages would look different than this. This is aggregate 
income per capita.
  Payroll jobs; 2.4 to 1.7 percent.
  Productivity; 2.3 to 1.1 percent.
  The record demonstrates a slow-growth economic policy that squeezes 
our economy and dampens our opportunity to produce the kinds of jobs 
and the kind of opportunity we should have in this country.
  Another chart shows the consequences of this kind of strategy. The 
consequences of someone saying we should slow the rate of economic 
growth might not seem like very much today. The difference between 2.2 
percent growth and 3.2 percent might not seem like very much next month 
or next year, but if you take a look in the outyears, what you have, 
the difference in these rates of growth of 2.3 percent annual rate of 
growth versus 3.3 percent, you will see that in the outyears, 20 years, 
you are talking about nearly $3 trillion in additional economic 
opportunity and output. What is $3 trillion converted to jobs, to hope, 
to a brighter future?
  So while some people may think this is fairly irrelevant whether you 
have a 2.3 percent rate of economic growth or 3.3 percent, it is an 
equation that will determine our place in the world as an economic 
power.
  To develop a strategy that says, ``Let's get reasonable rates of 
economic growth out of our economy so our economy can grow and provide 
jobs and opportunity,'' that is not going to happen with respect to 
this Federal Reserve Board and its leadership.
  I previously used a chart that showed the real Federal funds rate. I 
also have a chart that shows the difference in the real prime rate. The 
prime rate, the rate the very best customers of the lending 
institutions get their money at, shows pre-Greenspan, 3.09; current, 
5.35; the average Greenspan is 4.63. Everyone borrowing at prime rate 
is paying a higher prime rate than they ought to because the Federal 
Reserve Board decides they want to slow the economy down by extracting 
from the economy a higher interest charge and slowing growth rates as a 
result.
  I have spoken some about the Federal Reserve Board's policies, and 
especially the monetary policies with which I disagree. I expect some 
will substantially disagree with me. They will say, ``We like the Fed 
as it is; 2.3 or 3.3 economic growth are irrelevant issues. We want to 
vote to confirm Mr. Greenspan.'' When this debate is over, I expect Mr. 
Greenspan will be confirmed and will likely be confirmed with a rather 
substantial vote. I do not intend to join in the vote in favor of 
confirmation. I will restate again, lest anyone think differently, it 
is not personal. I admire Mr. Greenspan and his public record. I 
disagree substantially with the policies he is pursuing at the Federal 
Reserve Board, and I believe President Clinton would have done better 
for this country by offering a candidate with a chairmanship of the 
Federal Reserve who would pursue more balanced policies, policies that 
do not so clearly benefit one part of the economy at the expense of the 
other, policies that do

[[Page S6210]]

not so clearly benefit the bigger banks at the expense of this 
country's productive capability and at the expense of this country's 
worries.
  I will speak for a couple of minutes about a GAO report that Senator 
Reid and I requested be done about the Federal Reserve Board. It is 
another element that ought to be discussed with respect to a 
discussion, not only of the confirmation of Chairman Greenspan but the 
appointment of two other members of the Board of Governors at the 
Federal Reserve Board. We asked the GAO to do an evaluation of the 
Federal Reserve System largely because it sits out there apart from 
other Government institutions. It operates by itself and chooses how 
much money it wishes to spend, and takes the money from the interest 
charges it levies and makes its own judgments about how many people it 
wants to hire and how it wants to spend its money.
  We have not really had any indepth audits of the Federal Reserve 
System. There is very little information about the Federal Reserve 
Board available to Congress. Senator Reid and I asked for information 
to be made available through the General Accounting Office. We asked 
the GAO to do the audit. And it took them some 2 years to do it. It was 
interesting what we discovered.
  The first thing we discovered was a cash stash, we call it, actually, 
a surplus account at the Federal Reserve Board. I suppose some were 
aware of it. I was not aware of the surplus account that had been 
accrued at the Federal Reserve Board. This Federal Reserve Board has 
put away nearly $4 billion in a surplus account. They have done so in 
order, they say, to have it available to offset any losses they might 
incur. The Federal Reserve Board has been in existence for 80 years. In 
79 years they have not ever had a loss. In 79 consecutive years they 
have always had a surplus, they have made money, had no loss, and there 
is no expectation in the next 79 years that the Federal Reserve Board 
would have a loss.
  Yet they have captured some $3.7 billion--not million, billion--and 
put it into an account called a surplus reserve account. It has grown 
more recently because they want to offset against any losses they might 
have. An agency that has never had a loss and is never going to have a 
loss squirrels away $3.7 billion as a hedge against loss? That seems 
incredible to me.
  We have a big debt with big deficits. We have a lot of needs. We are 
in a situation in this country where the Federal Reserve Board has 
counseled, appropriately so, everyone, including the rest of the 
Government, to tighten their belt, and the Federal Reserve Board, 
behind closed doors, decided to overeat. We should tighten our belt; 
they want to expand.

  I have a picture of a building that the Fed had built. Here is the 
outside of the building, a beautiful building. I would not suggest they 
build an ugly building. It is a beautiful building built in Dallas, TX. 
Next, I want to show you the lobby of the building, because one of the 
things the GAO pointed out was that this Dallas Federal Reserve Bank, 
they purchased more land than they needed for it. The original square 
footage approved for the lobby area was exceeded by 250 percent. I 
thought the picture was interesting because they were going to build a 
bank with a lobby that had 7,800 square feet. If you can see this 
picture, we ended up with a lobby with 27,000 square feet. This is a 
giant lobby with all these wonderful windows and shiny marble, and this 
tiny little desk, two tiny chairs and a coffee table that could fit 
into a trailer, even if it was not a double wide. They put it in a 
27,000 square foot lobby in a building they built suggesting they would 
have a lobby of 7,000 feet. The GAO says--I guess the taxpayer here 
ends up paying for a 27,000 square foot lobby. Who is accountable for 
that? Where does it come from? I do not want to spend a lot of time on 
the lobby in Dallas. I have never been there. I do not expect to go 
there. I wish them well. In the meantime, somebody had to pay the bill 
to build a 27,000 square foot lobby. Some wonder if that is a useful 
approach to using taxpayers' money.
  Perhaps we could talk about the cumulative percentage increase in 
Federal Reserve expenses that the GAO found. The GAO is fairly critical 
of the Federal Reserve Board, saying at a time when the rest of the 
Government is told, ``Tighten your belt,'' the blue line on this chart 
suggests their operating expenses far exceed the Federal discretionary 
spending. If you included some entitlement spending here with health 
care costs that are automatically increasing, you have a different 
chart. This is a chart the GAO made. They point out in the areas where 
there is discretionary spending decisions that are made, while the rest 
of the Government is told to tighten their belt, the Fed is 
substantially increasing its spending.
  The next chart shows again, while the rest of the Government is being 
asked to tighten its belt, benefits per employee of the Federal Reserve 
Board in a 6-year period increased 91 percent. Benefits per employee 
increased 91 percent in a 6-year period, at a time when others are 
being told, ``You should tighten your belt.''
  The GAO report raises a series of questions about the stewardship and 
the management of the Fed. We intend to address some of those questions 
through legislation. I think it is useful for the Congress to read it 
and to evaluate it and have a discussion about it when we are 
discussing the confirmation of Mr. Greenspan, the other nominees and 
discussing the Federal Reserve Board generally.
  I have more to say, and there is more time to say it at a later time. 
I will be happy to yield the floor. I will be back on the floor at a 
later point and finish my statement. I yield the floor, and I suggest 
the absence of a quorum.
  The PRESIDING OFFICER (Mr. Abraham). The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. HARKIN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. HARKIN. Mr. President, I thank my colleague from North Dakota for 
his eloquent remarks a few moments ago in regard to the pending 
nomination of Mr. Alan Greenspan to continue as Chairman of the Federal 
Reserve Board, a position he has now held for 8 years. The nomination 
is for another 4 years.
  When I turned over the floor to Mr. Dorgan I had said at the time 
that I wanted to begin a process of going through Mr. Greenspan's 
history and I thought I might do it somewhat sequentially and then 
tomorrow I will pick up on a little bit more of his background 
regarding his early years. Because, not that I want to go back into 
ancient history, but I think you can see a pattern here throughout his 
entire adult lifetime of, quite frankly, being wrong on the economy and 
misjudging what is taking place.
  Again, it is my observation that, when you find people who are 
consistently wrong in a certain area, more often than not it happens 
because, I think, that person is more closely linked with an ideology 
or a certain philosophy, and therefore cannot accept facts as they 
really are, but they tend to be molded into an ideology, they tend to 
be molded into a conceptual framework and it impacts their view of the 
actual or real facts or real world as it might be.
  I think Mr. Greenspan's focus on getting as close to zero inflation 
as possible has molded his economic thinking, forecasting views, 
observations, prognostications, in such a way that they do not really 
comport with what is happening. Thus, the seemingly endless string of 
errors that he has made since the earliest times.
  I quoted earlier from the Investors Business Daily about some of 
those items. I will now go over a few more, before I yield the floor 
for the day. But let us start here with the time when Mr. Greenspan was 
the head of the Council of Economic Advisers for President Ford.
  President Ford introduced his whip inflation now, plan. I remember 
the little buttons, the ``WIN'' buttons: whip inflation now. He took a 
lot of his advice and consultation from Alan Greenspan. Let me say 
Jerry Ter Horst, Jerry Ford's press secretary, said this about Mr. 
Greenspan and the WIN plan, whip inflation now, and I am quoting Mr. 
Ter Horst, who was President Ford's press secretary.

       To be blunt about it, the President has lost confidence in 
     their ability, [meaning the economic advisers' ability] to 
     predict the future. He feels he has received inaccurate 
     advice and, having been burned politically and

[[Page S6211]]

     publicly because of it, Ford 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.

  Well, what happened is just the opposite of what was happening--what 
Mr. Greenspan had predicted. Let us look here at the recession of 1974-
1975. This is a question in an interview with U.S. News & World Report, 
November 4, 1974. Keep in mind the President introduced his plan in 
October.

       Question. Are you prepared to say we are in a recession 
     now?
       Answer. I would say that as of September, the last month 
     for which we have actual figures--the answer is no.

  That is November 4. The fact is that GDP fell at a rate of 4.2 
percent in the third quarter of 1974, it fell--not grew--fell 2.8 
percent in the fourth quarter of 1974, and it fell 5.8 percent in the 
first quarter of 1975.
  So, here we are, we have a GDP falling at these rates in the third 
quarter, which he had the figures then, and the fourth quarter in which 
he was in the middle of at this time. GDP is falling and he says no, we 
do not have a recession. There is no recession out there.

  So, again, I think that is why President Ford lost confidence.
  Let us look at unemployment. Mr. Greenspan was completely off in his 
estimates for the unemployment level for mid-1975. Instead of the 6.5 
percent ceiling as he predicted, unemployment reached 9 percent in May 
1975. It should be noted that when President Ford introduced his ``Whip 
Inflation Now'' in October 1974, the unemployment rate was 6 percent.
  Here again, the same U.S. News & World Report interview, November 
1974.

       Question. Do you have a projection for unemployment for 
     mid-1975?
       Answer. I have several, and they all show an unemployment 
     rate of more than 6 percent. It could be as high as 6.5 
     percent.

  Reality: For December 1974, the next month, the unemployment rate 
reached 7.2 percent. For May 1975, the unemployment rate reached 9 
percent. Again, Mr. Greenspan was off by more than a considerable 
amount.
  In a March 16, 1975, editorial, the New York Times stated:

       But the administration has consistently underestimated the 
     force of the recession and the rise of unemployment. The 
     first version of President Ford's economic program offered, 
     after his time-wasting economic summits last fall, would have 
     deepened the recession by going all out against inflation, 
     just as inflation was starting to slacken and the recession 
     worsen.

  Again, who was advising the President to go all out against 
inflation? Mr. Alan Greenspan. At a time when we were going into a 
recession--we already had the figures--at a time when unemployment was 
increasing dramatically, Mr. Greenspan says that we have to whip 
inflation--forget about unemployment--and we fell into a very bad 
recession.
  This editorial went on to criticize the tight money policies and the 
lack of focus on unemployment of the Ford administration that lasted 
into 1975. Again, I will finish the quote from this article. It says:

       But why should inflation be a threat to an economy 
     functioning far below its full capacity? The administration's 
     own economic assumptions, stated in his fiscal 1976 budget 
     projections, are that unemployment will continue to hover 
     around 8 percent for the next 3 years.

  Mr. Greenspan says it is only going to be 6.5 percent, do not forget.

       If the administration were to walk away from its own long-
     term forecast of unemployment, it cannot walk away from the 
     existing joblessness, the worst in the postwar period, and 
     the high probability that unemployment will increase over the 
     next few months.

  In fact, unemployment stayed high and did not get back down to 6 
percent until May 1978. So, we had a long recessionary period there.
  Summarizing the strategy of Greenspan and Ford, the economist Hobart 
Rowan noted:

       Ford and Greenspan were willing to drag the Nation through 
     a long period of recession and stagnation in which layoffs 
     would mount, profits shrink and business expansion be 
     postponed, all in the hope that austerity would cure the 
     inflationary mess.

  That is a quote from the Nation, by Hobart Rowan.
  The concern about inflation over employment continued well into 1975 
when the Ford administration was beginning its economic plans and 
predictions for 1976. Now we are past 1974; we are now into 1975.
  Walter Heller, who was President Kennedy's chairman of Council of 
Economic Advisers, said:

       The fear of inflation is still so dominant in Washington 
     today that it is evidently destroying policymakers' faith in 
     the recuperative powers of the American economy and blinding 
     their sensitivity to the governing plight of the unemployed.
       Transfixed by this fear, the White House and Federal 
     Reserve authorities are greeting the earliest signs of modest 
     recovery from the deepest of all postwar recessions as if 
     prosperity was just around the corner. The hellfires of a new 
     inflation are about to engulf us and let the devil take the 
     hindmost the job beast.
       President Ford justifies his veto of the emergency jobs 
     bill last month in good part that economic recovery would be 
     well along by the end of 1975, and much of the bill's impact 
     would not be felt until 1976.

  As we know, unemployment did not come back down again until 1978.
  Those are a few of the things that Mr. Greenspan said during the 
recession of 1974-75. Inflation was at a high period and should have 
been of concern. But, Greenspan's focus was only on that point. It was 
not balanced.
  Let us jump ahead to the recession of 1990-91. This is the transcript 
from the minutes of the Federal Open Market Committee, August 21, 1990. 
Earlier in the day, I said they keep these minutes sealed for 5 years. 
We now have these minutes from that August 21 meeting. Mr. Greenspan 
says:

       I think there are several things we can stipulate with some 
     degree of certainty; namely, that those who argue that we are 
     already in a recession I think are reasonably certain to be 
     wrong.

  August 21, 1990.
  The reality: The National Bureau of Economic Research, the official 
arbiter of when recessions begin and end, determined the recession 
began in July 1990.
  In fact, Mr. Greenspan went on after that, later on--and I will get 
those minutes--when he went clear into November basically stating that 
there was really no recession at hand.
  In his testimony at his confirmation hearings in 1987 before the 
Senate Banking Committee, Senator Riegle had the following exchange 
with Mr. Greenspan. This is Mr. Riegle:

       Now, in the first place, when you were chairman of the 
     Council of Economic Advisers during the Ford administration, 
     the council had a dismal forecasting record. I have here a 
     study by the Joint Economic Committee which showed in 3 
     years--1976, 1977, 1978--the forecasts of the agency which 
     you headed, Mr. Greenspan, were wrong by the biggest margin 
     of any in the 11 years 1976 through 1986. They tied the 
     record for being wrong in 1978. They were almost as bad in 
     1977, and they were way off in 1976. That's on growth.

  I am still quoting from Mr. Riegle's question.

       When it comes to Treasury bill rate forecasting interest 
     rates, there you broke all records for the entire period . . 
     . when you estimated that you predicted that the Treasury 
     bill rate in 1978 would be 4.4 percent. It actually was 9.8 
     percent. You were off by a huge margin.
       In 1977, you predicted it would be 5.3 percent; it was 8.8 
     percent. Again, way off. 1976 wasn't quite as bad, but you 
     were off then.

  Again, Mr. Riegle, continuing on with his question, says:

       Then we come to your forecast on inflation of the Consumer 
     Price Index. There, again, Mr. Greenspan, you broke all 
     records. 1978 was the worst forecasting year that you had. 
     You estimated the rate of increase in the CPI would be 4.5 
     percent. It was 9.2 percent. And you were way off in 1977 and 
     1976.

  What was Dr. Greenspan's response?

       Well, if they're written down, those are the numbers.

  As if it just did not matter. The source of this is testimony of Alan 
Greenspan before the Senate Banking Committee on July 21, 1987.
  So, Mr. Greenspan's private record in the early 1980's was just as 
bad.
  After Ford's defeat in 1976, Greenspan returned to his economic 
consulting firm: Townsend, Greenspan. There he continued to make 
inaccurate predictions about which direction the economy was heading. 
In 1982, Mr. Greenspan's published economic forecasts said bond yields 
would fall one-

[[Page S6212]]

quarter of a percent from the previous year-end level. In fact, they 
fell 3\1/2\ percent. But the drop in inflation was only temporary, he 
argued, in 1983.

  The Fed-Volcker-induced inflation calm, he insisted, was about to 
end. In fact, inflation stayed quite steady at 4 percent to the end of 
1987 and the end of the Volcker regime at the Fed.
  Also in 1983, Mr. Greenspan said:

       Long-term interest rates would increase 20 basis points.

  This proved to be his best forecast ever. Rates did rise, but by a 
full 1 percent, not the meager two-tenths of a percent that he 
predicted.
  At the start of 1984, Mr. Greenspan forecast that for the next 3 
years, bond yields would rise from 5 to 55 basis points. They actually 
dropped from 123 to 199 basis points. So even in his private years, 
when we look at his forecasts, they were way, way off.
  Let us look at the rate increases in 1990. As Chairman of the Federal 
Reserve, Greenspan's forecasting abilities continued to leave much to 
be desired. Again, according to the June 9, 1995 Investors' Business 
Daily:

       In February 1989, despite clear evidence of a slowdown, the 
     Greenspan Fed pushed its benchmark interest rate higher, to 
     9.75 percent. The Federal Open Market Committee based its 
     decision on staff advice that the recession was low, 
     according to the minutes from that period. The Fed did not 
     start easing rates again until June, too late to avoid a 
     recession. In fact, transcripts indicate that the Fed was 
     contemplating interest rate increases for much of the earlier 
     part of 1990.

  During the August 21, 1990 Federal Open Market Committee hearing, 
there was much discussion about the possibility that the U.S. economy 
had slipped into a recession. Backed up by his economists, Greenspan 
believed there was significant evidence that showed the economy was not 
in a recession; it was merely sluggish. And thus his quote here:

       I think there are several things we can say with some 
     degree of certainty; namely, that those who argue that we are 
     already in a recession I think are reasonably certain to be 
     wrong.

  He goes on to say in the sense that we do have weekly data that 
suggests, as others have mentioned, that there was no evidence of 
deterioration in what was a very sluggish pattern. Yet, the recession 
started in July of 1990. Now, you might say this is a little early.

  Two months later, at an October 2, 1990, Federal Open Market 
Committee hearing, Mr. Greenspan used a meteorological analogy to 
strengthen his argument that the U.S. economy had not slipped into 
recession. Mind you, we started the recession in July. We are now in 
October, about 3 months into the recession. And here is what Mr. 
Greenspan said:

       I still think we're in a situation in which 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. 
     And the point is, it isn't raining. The point is, as best I 
     can judge, that the third quarter GNP figures in the green 
     book are not phony. I think they are relatively hard numbers. 
     They can get revised. They are being put down more and more, 
     but the economy has not yet slipped into a recession.

  The actual words of Mr. Greenspan, October 2, 1990. I will not get 
into the thunder and lightning and the rain and all that kind of stuff. 
What he was saying is, oh, there is all this talk about a recession 
but, he said, I have looked at the numbers and it is not there. We had 
been in a recession for 3 months. He was very wrong.
  The economy actually went into a recession in July 1990, a month 
before Iraq invaded Kuwait, by the way. Not only did Mr. Greenspan miss 
the oncoming recession, he missed it when he was in the middle of it. 
And he did little to reverse its negative effects.
  In testimony before the Senate Banking Committee he rejected measures 
to put Americans back to work by saying proposals by Democrats to 
stimulate economic growth by pumping more Federal money into public 
works programs were ``risky'' and ``probably counterproductive.'' 
Instead, he denied the economy had gone flat and predicted a moderate 
2.5 percent growth rate that year rising as high as 3 percent in 1993. 
The GDP only grew 2.2 percent in 1993.
  Even Senator D'Amato said at a July 1992 hearing:

       I believe the Federal Reserve has acted in an almost timid 
     manner. You, (Mr. Greenspan) don't know what's taking place 
     on Main Street.

  That is a quote of my colleague from New York, Senator D'Amato. That 
was quoted in the Indianapolis Star, July 22, 1992.
  I think that brings us to a period of time that I want to dwell on at 
some length tomorrow, that is, the period of 1994 into 1995. As I said 
earlier today, when I tell people that Mr. Greenspan raised interest 
rates 100 percent in one year, February 1994 to February 1995, people 
cannot believe it. They have never heard of such a thing.
  Yet, here is what happened. The Federal funds rate in February 1994 
was 3.05 percent. In May they went to 4.25; March they went to 3.5; 
April, 3.75; in May of 1994 to 4.25. So from February to May, that is 
one, two, three--that is four increases already. And in August another 
increase. November another increase. February another increase. By the 
time February of 1995 came around, the Federal funds rate was 6 
percent, up from 3.05 percent 1 year earlier. A 100 percent increase in 
1 year.
  And again, why? Was there inflation? Even Mr. Greenspan during that 
period of time said he did not really see inflation. I will have those 
quotes and I will have those words.
  But I just wanted to make the point here before I close--I see I have 
some other people on the floor who want to speak; probably about other 
items--that Mr. Greenspan was wrong when he was head of the Council of 
Economic Advisers. He was wrong when he was in private business. Now as 
Chairman of the Fed, when we are in the midst of a recession, he says 
he does not see it happening. Then in 1994, with little threat of 
increasing inflation, he raises interest rates 100 percent. That hit 
working families hard. It slowed our economy down. I think it is a 
large part of some of the problems we have now with the stagnation in 
our wages.
  Mr. Greenspan can have all kinds of reasons why he raised the 
interest rates. But the fact is, there was absolutely no inflation 
threatening at all at that period of time. I am going to have more to 
say tomorrow about 1994 and 1995. I will have the quotes from Mr. 
Greenspan when he basically said that he did not think there was any 
inflation threatening. But he went ahead and raised interest rates.
  What has happened? You might say, OK, interest rates went up 100 
percent. But that was February 1995. Since February 1995, throughout 
now, we have had not seen inflation increase. So have interest rates 
come back down? Three-quarters of a point. Three-quarters of a point.
  In fact, the last time they came down, in January, I believe a 
quarter of a point, there was all this talk about how the Fed was now 
reducing interest rates. But the fact is, as Mort Zuckerman pointed 
this out in his editorial--I will read that tomorrow also--in U.S. News 
& World Report, pointing out that actually there was not a decrease in 
interest rates. It was an increase in interest rates. Why? Because 
during the previous period of time, inflation had fallen more than a 
quarter of a point. Inflation fell by more than a quarter of a point 
and interest rates only came down a quarter point. Real interest rates 
were still high. It was not a real reduction, a reduction in real 
interest rates.
  We have had this 100 percent increase in interest rates, 1994 to 
1995. Since that time Mr. Greenspan has only reduced interest rates 
three-quarters of a point. So I believe American working families, 
American workers, the middle class, the real middle class in America, 
is overburdened by too much debt and too high interest rates. It is 
sapping our economy and hurting our small businesses. It is hurting our 
productive sector, and it is hurting farming and manufacturing.
  As I said, it is hurting our working families. It is hurting the real 
middle-class America, not Congressman Heineman's middle class, but the 
real middle class. The Congressman from North Carolina stated last year 
that he believed the real middle class were people who made between 
$300,000 and $700,000 a year. That is not the real middle class.
  The real middle class is feeling really pinched these days. They are 
pinched by high interest rates that do not need to be there. They are 
only there because Mr. Greenspan, I believe, has an

[[Page S6213]]

inordinate, unhealthy fear of the specter of inflation. That has caused 
the kind of hair-trigger approach that they have at the Fed that any 
time there is even the specter on the horizon of inflation, they will 
move to increase interest rates, to the point now, that the bond 
markets react even before they do it because they think they are going 
to do it.
  So I am going to discuss the 100 percent increase in interest rates, 
1994 to 1995, why that happened, why at least I think it happened, and 
the fact that interest rates should have come back down to that 
previous level by now and could come down, not in one fell swoop, but 
could have over a period of time. That could have really strengthened 
our economy.
  As I said, that is nothing personal. I agree with Mr. Dorgan. I have 
nothing personal against Mr. Greenspan. I assume he is a very bright, 
intelligent individual. But I believe that his policies, I believe that 
his mindset, are locked in the past. After all, this is an individual 
who as late as last year in committee on the record said that he did, 
indeed, believe in going back to the gold standard, he would support 
going back to the gold standard.
  Well, I do not know how many economists believe that. But I think you 
get that kind of mindset that says, yes, he would like to be on the 
gold standard again. Well, that may have been a good thing at one time, 
but the world has moved, the economy has moved. We are in a little 
different situation today. I daresay anyone who believes that we ought 
to go back to the gold standard is the same kind of person who would 
have this inordinate attitude that we must keep relatively high 
interest rates no matter what, even if inflation is less than 2 
percent.
  I believe it does a disservice to our economy, it does a disservice 
to America, and it does a disservice to our next generation of young 
people coming along. We need to grow this economy. We can do all we 
want here in the Congress. Because of budget constraints, there is 
nothing we are going to do that could in any way affect the growth of 
our economy as much as lowering interest rates by the Fed could. That 
probably will not happen as long as we have Mr. Greenspan.
  (The remarks of Mr. HARKIN pertaining to the introduction of S. 1876 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')

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