[Congressional Record Volume 142, Number 88 (Friday, June 14, 1996)]
[Senate]
[Pages S6284-S6294]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                FLAG DAY

  Mr. BYRD. Mr. President, it was 219 years ago today that the 
Continental Congress formally designated June 14 as Flag Day. So, 
today, we recognize this anniversary of Flag Day, going back to the 
time when, as I say, the Continental Congress formally designated the 
Stars and Stripes as the flag of our country. We honor the symbol of 
the Nation when we honor the flag.
  In these days of new-fashioned values and new-fangled technology, we 
most often forget the old-fashioned patriotism that made this country 
great.
  We are a vast nation and we glibly speak of our form of government as 
a democracy. It would be impossible for a government of a nation that 
is so sprawling as is the United States of America to be a democracy in 
the raw and purest sense. This is a republic, a republic. We pride 
ourselves on our democratic processes but we loosely, very loosely talk 
of ours as a democracy. It is a republic. And there is a difference.
  We are a vast nation, becoming more and more diverse in population, 
language and custom with each passing year, and we would do well to 
remember often and salute one of our greatest unifying standards, the 
Stars and Stripes, the American flag.
  I have not heard anyone speak of this as Flag Day on the floor today. 
There may have been someone who has addressed the subject already. I 
would be very pleased to find that to have been the case. I hope that 
everyone will display our flag throughout the weekend and remember all 
that flag means, remember all that it has meant to generations of 
Americans who have fought and bled and died so that the rest of us can 
enjoy freedom.
  Freedom, unfortunately, cannot be entirely inherited by a nation or a 
people, any more than children can fully inherit knowledge and courage 
from their parents. Each generation must learn to understand and to 
rededicate itself to the pursuit of freedom. That is one reason why 
Flag Day is so important--why all of our national holidays should be 
emphasized. We must, most certainly, halt in our confident strides 
toward the future and take a long and serious look at the core of our 
beliefs. When we show to our neighbors and our friends that we believe 
in America--that we are active citizens and proud of the fact that we 
have been so blessed--we perpetuate our core principles and solidify 
our unity as a nation.
  So, today I would hope that we would be a little old-fashioned, and 
rededicate ourselves to freedom and to the glorious red, white and blue 
that, no matter how sophisticated we all may think we have become, 
should always make our hearts pound and put that lump in our throats as 
that flag goes by.
  No, we have become too new-fashioned, sophisticated, forgetting that 
when we came into this world we came emptyhanded and when we leave this 
world we will leave it emptyhanded.
  Alexander conquered the then-known world, but he left it emptyhanded. 
There is the story that he was buried in a coffin with his hands 
hanging outside the coffin to demonstrate that one leaves the world, no 
matter how much of it he has conquered, how successful he has been, how 
prosperous he was blessed to become--when he leaves the world he leaves 
it emptyhanded.
  So, with all of our thin veneer of sophistication, it might be well 
to pause and reflect upon the fact that when we leave this world we 
will leave it emptyhanded. And it is good, sometimes, for Senators to 
remember that when they leave this Chamber for the last time they will 
be remembered for about 10 days. I have been around here a long time. I 
have seen men and women come and go, great in their prime, they 
thought--and others thought--but soon forgotten.
  So I like to do things the old-fashioned way and I like to remember 
the flag in the old-fashioned way. So let us, today, rededicate 
ourselves to an appreciation for and a respect for the Stars and 
Stripes.
  When Americans look at their flag, if they stop and think, they see 
all that is dear to their hearts about America. They think of the 
heroes who shed their blood for our country. They think of Nathan Hale, 
who was executed as a spy in the year 1776, who regretted that he had 
only one life to give to his country.
  They think of John Paul Jones; of James Lawrence, who said, ``Don't 
give up the ship.''
  They think of Francis Marion the ``Swamp Fox,'' Nathanael Greene, 
George Washington at Valley Forge.
  They think of all those men and women down through the array of 
decades who gave everything, gave their lives, who sacrificed for our 
country. When they see that flag, oh, it is just a piece of cloth, a 
bunting, but it is far more. It represents the history of this 
Republic. It is older than the Republic itself: Flag Day, dating back, 
as I say, to the year 1777, 10 years before the Constitution was 
written, which established this Republic.
  They think of all that is good and noble and great about this country 
when they see that flag. They should think of it. It should remind us 
of this country's glorious history, of the good deeds that America has 
performed, of how she has shared her wealth, her treasure, her blood 
that others might have freedom.
  And wherever they may travel, whatever ocean or sea they may cross, 
the sight of that symbol--the red, the white, the blue--our flag, 
brings to the heart the thoughts of home.
  That flag is the symbol of all of the dreams that we have had and 
that we may have about America. Let us remember it on this Flag Day--
the symbol of America the Beautiful.
  Henry Van Dyke said it best in his poem: ``America for Me'':

     'Tis fine to see the Old World, and travel up and down,
     Among the famous palaces and cities of renown,
     To admire the crumbly castles and the statues of the kings,--
     But now I think I've had enough of antiquated things.

     So it's home again, and home again, America for me!
     My heart is turning home again, and there I long to be
     In the land of youth and freedom beyond the ocean bars,
     Where the air is full of sunlight and the flag is full of 
           stars.

     Oh, London is a man's town, there's power in the air;
     And Paris is a woman's town, with flowers in her hair;
     And it's sweet to dream in Venice, and it's great to study 
           Rome;
     But when it comes to living, there is no place like home.

     I like the German fir-woods, in green battalions drilled;
     I like the gardens of Versailles with flashing fountains 
           filled;
     But, oh, to take your hand, my dear, and ramble for a day
     In the friendly western woodland where Nature has her way!

     I know that Europe's wonderful, yet something seems to lack!
     The Past is too much with her, and the people looking back.
     But the glory of the Present is to make the Future free,--
     We love our land for what she is and what she is to be.

     Oh, it's home again, and home again, America for me!
     I want a ship that's westward bound to plough the rolling 
           sea,
     To the blessed land of Room Enough beyond the ocean bars,
     Where the air is full of sunlight and the flag is full of 
           stars.

  Mr. President, I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative 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.

[[Page S6285]]



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

  The Senate continued with the consideration of the nomination.
  Mr. HARKIN. Mr. President, let me begin by commending my good friend, 
the Senator from Nevada, Senator Reid, for his diligence and hard work 
in examining the Federal Reserve's operations. Senator Reid has worked 
with the GAO to look into the Federal Reserve's business practices.
  Some startling examinations have been uncovered because of the 
efforts of Senator Reid and Senator Dorgan. I must say the information 
that they have uncovered is startling. I urge my colleagues to 
carefully review all that the Senator from Nevada has said today, both 
regarding the nomination before us and the logic of considering future 
legislation that might go to these questions.
  Massive management lapses appear to be going on--accounting errors, 
excessive costs of operation, a multibillion dollar slush fund and 
other oversights. There are many, many important questions that 
Senators Reid and Dorgan have uncovered, with the GAO's help. They are 
to be commended for asking the GAO for this investigation.
  As I said the other day, Mr. President, the Federal Reserve is not a 
separate branch of Government like the executive branch or the 
judiciary. But even so, we have the power of the purse strings. Even if 
the executive branch squanders money, and things like that, we look at 
it. We have hearings. We look into that and we take action.
  We should also do that with the Federal Reserve. I will not stand 
here and say that all of the items uncovered by the GAO are something 
that requires us to take a certain action right now. But certainly they 
warrant further investigation. I hope that we will fulfill our 
obligations to follow through on those GAO reports. We will be having 
more to say about that next week, to look at the operations of the 
Federal Reserve and perhaps make some changes in the law on how the 
Federal Reserve operates.
  Again, I repeat, the Federal Reserve System is a creature of 
Congress. It exists only because Congress enacted a law to erect a 
Federal Reserve System. Obviously, Congress has the right, the power, 
the duty and the obligation to change and alter that law to fit 
different times and circumstances or to make the Federal Reserve, I 
believe, more accountable to the American people.
  So I just want to commend Senator Reid for his diligent work in this 
area.
  Mr. President, I rise on the second day of debate on the nomination 
of Alan Greenspan as Chairman of the Federal Reserve Board. As I have 
said many times, this is a critically important nomination that 
deserves the Senate's full consideration. The Federal Reserve Chairman 
is widely recognized to be the single most important economic decision 
maker in the country--let me repeat that--the single most important 
decision maker, in terms of our economy, more important than the 
President, more important than 535 Members of Congress.
  It is the obligation and the duty of this body to thoroughly review 
and debate the record and policies of any nominee to this vital post.
  We started this 3-day debate yesterday. At that time, I outlined my 
concerns about the record of Alan Greenspan, both as Chairman of the 
Council of Economic Advisers in the 1970's and as Chairman of the 
Federal Reserve from 1987 to the present time.
  As I said yesterday, this is not about personalities. It is about 
policies. It is about laying the facts on the table and taking an 
objective view of the Greenspan record. This debate is not really about 
one man; it is about a much larger issue that touches the lives of 
every American family.
  Yes, there are a lot of complicated economic terms and intricate 
statistics and charts that we have talked about and that we will talk 
about some more. But we should not get lost in the complexities.

  Perhaps one of the reasons we do not debate more often than we do 
economic policy and Federal Reserve policies and nominations that come 
to the Board, and their views, is because economics is, as they say, 
the dismal science. Sometimes it is hard to cut through all of the data 
and charts and the statistics.
  But, again, when you strip it all away, strip away the complexities, 
it boils down really to this. When you get to the heart of it, what we 
are really talking about is very simple, fundamental things. We are 
talking about real people, individuals and their families, trying to 
make a payment on their house, or trying to buy a house, trying to buy 
a new car, families trying to work with their bank to get the funds to 
put in next year's crop, if they are farmers, or maybe to get a loan to 
operate their small business for next year.
  That is what this debate is about. It is about wages, about how much 
will our working people make in the next year? It is about families. 
That is why we are having this debate. That is why I insisted on this 
debate. This debate is about raising the living standards and real 
wages of hard-working Americans. That, I believe, stands as our primary 
economic challenge.
  But 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. But the Federal Reserve, led by Mr. Greenspan, 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 at the door, but when it did not 
even threaten. In 1994, in the midst of seven straight interest-rate 
increases, Chairman Greenspan himself acknowledged there was little 
evidence of rising inflation.
  Mr. President, the decisions of a Fed Chairman affect every 
pocketbook and every family budget in America. The decisions of this 
Chairman have cost American families lost income, lost opportunities.
  The essential fundamental question I believe boils down to this: Why 
will Alan Greenspan not give working families a raise? That is really 
what it boils down to. 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 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 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 Mr. Greenspan. There is what I call a 
common thread 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 up to today, Mr. Greenspan has consistently shown the 
same two tendencies: First, he often misjudges the signs of an oncoming 
recession; second, he does not act decisively enough to pull the 
economy out of the recession because of his fear of inflation. The 
bottom line is that Chairman Greenspan has a long history of focusing 
solely on inflation to such an extent that all focus on expanding our 
economy has been lost.
  The mindset today is that 2 percent growth is acceptable, the economy 
cannot grow any faster, maybe 2.5 percent at the maximum, but we cannot 
have the 3 percent growth of the 1970's or the 4 percent growth of the 
1960's. That is the mindset. I ask, why? What is wrong with America? Is 
productivity going up? Are people working harder than ever? We are 
getting new products on the markets, the information revolution has hit 
us all over this country. We have all kinds of new inventions and 
devices, labor saving devices, not to mention pharmaceuticals and drugs 
to help make our lives better. We have the information revolution, 
computers, even in education--all of this lending

[[Page S6286]]

itself to a robust America, ready to go. That is the America I see out 
there, an America that wants to work, that wants to grow, that wants to 
give families a better deal, that wants to raise the wages of our 
working families, yes, that wants to reduce unemployment. That is the 
America that is out there.
  If this harness is kept on by the strict monetary policies of the 
Federal Reserve, that inherent ability of America to grow will be 
stifled. Thus, I say that what is happening at the Fed is a disservice 
to all of America, to us in our generation and certainly to the next 
and future generations who require our economy to grow for their 
education, for their livelihood, and for their jobs in the next century 
and beyond.
  Yesterday, I had an opportunity to explore in detail much of Mr. 
Greenspan's previous labor. I displayed a chart that showed Mr. 
Greenspan's record as Chairman as compared to others. It is dubious, at 
best. I went back to the Fed Chairman Mr. McCabe from 1948 to 1951, 
William McCheseny Martin, Mr. Burns, Mr. Miller, Mr. Volcker and now 
Mr. Greenspan. I pointed out our real growth in the country during 
their terms. You see 6.1 percent, 3.6 percent, 3.3 percent, 4.5 
percent; and it is lower under Volcker, 2.5 percent, and under 
Greenspan, 2.2 percent. Looking at Mr. Volcker, he came in facing a 
13.2 inflation rate before he started, and he cut it in half during his 
term. In bringing that down, we had a low growth rate, but still, it 
was 2.5 percent. Look at Mr. Greenspan, inflation before he came in was 
4.1 percent, lower than almost at any time in any of these previous 
tenures. He has only reduced inflation to 3.2 percent--about 25 
percent. Mr. Volcker cut it in half. Look at Mr. Greenspan's growth 
rate--2.2 percent.
  Using a comparison analysis, Mr. Greenspan's stewardship at the Fed 
is lacking, compared to those who came before him. That 2.2 percent 
growth rate is abysmal when you look at the growth rates under previous 
Chairmen. If he had high inflation rate and then cut it in half, maybe 
you could accept low growth. But I find it difficult to accept this low 
of a growth rate with minimal reductions in inflation--4.1 percent to 
3.2 percent. Look at how Greenspan compares to the past.

  I said yesterday, people say, ``Well, our economy has matured. We 
cannot grow like we did in the 1950's or 1960's or 1970's. We cannot 
grow at that rate anymore.'' The recent efforts of the Federal Reserve 
have reminded me of the invention of the wheel. The people who invented 
the wheel they probably said, ``We have the wheel. We do not need 
anything else.'' I bet they were happy with the wheel, and they thought 
that was the best thing, and they thought they did not need anything 
else.
  Those who say that America's economy has matured and we cannot grow 
at this rate I believe are saying the same thing. It reminds me of the 
person who once said, maybe the head of the Patent Office said, 
``Everything that can be invented has been invented. There will not be 
any new inventions.'' That was about 80 or 90 years ago. Well, our 
economy can grow a lot faster. That is why we are having this debate. 
We can bring more people into the labor force.
  In addition, I also discussed yesterday Mr. Greenspan's misguided and 
ill-advised policy recommendations to President Ford that deepened our 
country's recession in the mid-1970's. The record shows Mr. Greenspan 
cost jobs and further weakened our economy. I also discussed Mr. 
Greenspan's forecasting record as a private economist in the early 
1980's. As I pointed out yesterday, he was wrong on inflation. He was 
wrong on interest rates. He was wrong on bond issues. Then chairman of 
the Banking Committee, Senator Riegle, pointed out in Mr. Greenspan's 
1987 confirmation hearings:

       You had an opportunity to be a forecaster with Greenspan 
     and O'Neil. As you know, you put your forecast to a direct 
     test in the private sector. The fact is that the firm only 
     survived a few years.

  And according to a Forbes article of April 20, 1987, in 1985, his 
full first full year of business, O'Neil and Greenspan turned in one of 
the least impressive records of all pension funds advisers.
  In 1990, Mr. Greenspan was again way off in his economic forecasts, 
as I pointed that out yesterday. On October 2, 1990, at an Open Market 
Committee hearing meeting, Mr. Greenspan had this to say is from the 
minutes of that meeting.

       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 put down more and more, but 
     the economy has not yet slipped into a recession.

  Now, that was in October 1990.
  I want to note that the recession began in July 1990--a month before 
Iraq invaded Kuwait. Yet, in October, Mr. Greenspan was still saying it 
is not raining out. I want to note that Mr. Greenspan's forecast 
improved after that. On December 18, 1990, Mr. Greenspan said 
confidently, ``At some point, we are going to come out of this.'' So 
between October 2 and December 18, Mr. Greenspan found out it really 
was raining, but it was much too late. He said, ``At some point, we are 
going to come out of this.'' He was right. The recession officially 
ended in March 1991. So, Mr. President, that is the record. Those are 
the facts.
  Today, I want to focus on a few more important aspects of the 
Greenspan record. I will zero in on the Greenspan rate increases of 
1990 and 1994. First of all, I think I am going to refer to this now, 
and then I will come back to it later. Many times, I talk to people and 
say, ``Do you know that, in 1 year, from February 1994 to February 
1995, Mr. Greenspan had seven rate increases in the Federal funds rate? 
He raised those interest rates 100 percent.'' People look at me like I 
came from another planet. They say, ``No, of course not, nobody raises 
interest rates 100 percent.'' I said, ``Yes, he did.''
  Mr. President, here are the figures. In February 1994, the Federal 
funds rate was 3 percent; in February 1995, 6 percent. Well, that is 
100 percent. It is a doubling any way you look at it. That was in 1 
year, from February 1994 to February 1995. From February 1995 until 
today--we are talking about almost 16 months--what has happened? 
Interest rates have only come down three-quarters of a point, to 5.25. 
That is still way higher than they were in February 1994. This is what 
is causing the stagnation in America and what is causing wages to be 
stagnant. This is what is causing the slow growth in our economy.
  I want to spend a little more time, also, discussing unemployment, 
something called the nonaccelerating inflationary rate of unemployment, 
or NAIRU. Perhaps this is one of the reasons nobody wants to debate 
economic policy. You get these kinds of terms--NAIRU.
  Let us discuss NAIRU and see if we can strip away all the fancy talk 
and see what it is all about. Let us begin with the words of Robert 
Eisner, a former president of the American Economics Association, when 
he said, ``Neither the fiscal stimulus of structural budget deficits, 
nor the monetary stimulus directed at reducing unemployment in the 
United States have yet caused permanently accelerating inflation, or 
much inflation at all.''
  I am going to repeat that. ``Neither the fiscal stimulus of 
structural budget deficits, nor the monetary stimulus directed at 
reducing unemployment in the United States have yet caused permanently 
accelerating inflation, or much inflation at all. Most of the inflation 
of the postwar period has come from supply shocks--chiefly, the great 
run-up of petroleum prices in the 1970's and early 1980's.''
  Now, we talked about this nonaccelerating inflation rate of 
unemployment. That means that, well, if you bring unemployment down too 
far, then employers will have to bid up the wages. By bidding up the 
wages, that will cause price increases because they have to pay higher 
wages, and that causes a round of inflation. Many economists simply do 
not agree with that. That is what Mr. Eisner is saying. He is saying, 
nothing that monetary policy has done to reduce unemployment has 
permanently caused accelerating inflation. I believe Mr. Eisner is 
right. But that fear of inflation is the driving force of the Federal 
Reserve today, and, particularly, Mr. Greenspan.

[[Page S6287]]

  He has become ``Mr. Chairman Slow Growth,'' ``Chairman Stagnant 
Wages,'' and ``Chairman Unemployment Is Good for America.'' Mr. 
Greenspan has an economic philosophy that simply does not focus on the 
problems of average people. We are seeing an interesting pattern at the 
moment. The 30-year bond, and many other interest rates, have been 
rising for several weeks, and many bond market leaders have been 
wringing their hands about the possibility of rising inflation. But the 
economy, at this moment, does not give much indication of accelerating 
inflation.

  Our economy can be much more vibrant without the threat of inflation. 
It can expand. Unlike Chairman Greenspan, I do not see that as a bad 
thing to be stopped. Our economy ought to expand and grow, and 
unemployment ought to come down and, yes, wages ought to go up.
  Some people talk about a 4-percent growth for the quarter that we are 
in right now. Well, it initially came out that we had a 2.8 percent 
growth for the first quarter of this year. All the articles said that 
was incredible, booming growth, 2.8-percent. It was later revised to 
2.3 percent. I do not think that is booming growth at all. I am told 
most economists see growth in the second half of the year at a far 
slower pace.
  I am going to paint with the same brush both the administration and 
the Federal Reserve. I believe the administration is accepting too low 
a growth rate, a bit over 2 percent. I believe that has been fostered 
and bolstered by the Federal Reserve, which also sees growth at around 
2 percent.
  Here we are, Mr. President, 348,000 jobs were created last month when 
half a million started to look for work, showing that our work force 
can indeed grow. As you said, we are straining. It is out there. People 
want to work. Productivity is going up. We want to get out there and 
work. But despite this kind of good economic news--that is, that more 
people are looking for work and that our economy is going to grow a 
little bit--we continue to hear the drumbeat of gloom and doom from the 
Federal Reserve and from the barons of the bond market.
  Now, again, I suppose that maybe Mr. Greenspan himself, and his 
supporters, would say he does not have a choice. If the Federal Reserve 
does not raise interest rates, then the bond market will see that the 
Federal Reserve lacks the will to fight inflation, they will dump bonds 
and flee the market, and long-term interest rates will skyrocket. That 
is what they say. A lot of bond traders repeat that refrain. But I 
point out that they repeat that refrain because of the actions taken by 
Mr. Greenspan over the last several years.
  Mr. President, I believe that a balanced Federal Reserve policy would 
not see a long-term climb in bond rates--that is, if we had a balanced 
policy. If that was reiterated and distinctly spelled out, I do not 
think we would see a long-term climb in bond rates. You get the long-
term climb in bond rates because, if there is good news in the economy, 
the bond traders rush in to dump the bonds because they believe that 
Mr. Greenspan is going to slap on higher interest rates right away. 
That is what they believe, so they react accordingly.
  I know this may sound kind of confusing, but when you get right down 
to it, it is really, again, very simple. It has to do with whether or 
not we will have a balanced policy of growth and low unemployment, 
alongside a policy of fighting inflation.
  Let me read an article in the February 5 New York Times by Lewis 
Uchitelli. He is talking about the Federal Reserve that voted to raise 
interest rates when they did it for the seventh time in a year back in 
1995. In keeping interest rates high, he talked about how this speared 
inflation. He goes on to say,
       In this ritualistic dialog between the Fed and the bond 
     market, which everyone pretends is not happening, the reason 
     for the Fed's existence is sometimes overlooked. Aside from 
     fighting inflation, the Fed's mission, specified by Congress, 
     is to keep the economy growing and Americans employed. That 
     goal can get lost in any dialog with the bond market, which 
     puts slowing the economy to fight inflation ahead of putting 
     the unemployed to work.

  There you have it. You cannot say it any better than that. Yet, 
Congress has stipulated in law that the Federal Reserve is to also 
fight unemployment and to take that into account.
  We have a bill in the Banking Committee that would take out of the 
law the provision that says the Fed should take into account 
unemployment in making its decisions and should only then look at 
inflation. Well, it is before committee, but I do not think it will get 
past the floor.
  Mr. Greenspan has indicated support for that approach. He has 
indicated support for legislation that would take out of the law a 
requirement that the Fed look at unemployment in making its decisions. 
Well, again, I talk about his mindset and his philosophy--his economic 
philosophy. I do not believe anybody ought to be Chairman of the 
Federal Reserve who supports a policy of ignoring unemployment and only 
focusing on inflation in setting their policy.
  I would like to read a short statement again from the business sector 
of our country, a statement by the National Association of 
Manufacturers. The first was on June 11, 1996. This is 5 days ago. This 
is from the National Association of Manufacturers:

       The decline in producer prices, after several months of 
     rapid increases, confirms that inflation is not a threat. The 
     spike in wholesale prices during the first 5 months of 1996 
     was caused mainly by the relative price of energy. Excluding 
     the volatile food and energy components, the core rate of 
     inflation was consistently lower.
       Some energy prices, such as gasoline, are now leveling off 
     while others, such as heating oil, are declining. Energy 
     prices should decline even more later in the year as Iraqi 
     oil comes onto the market. This decline will put downward 
     pressure on both the producer and consumer price indexes in 
     coming months. For the year as a whole, producer prices 
     should rise only about 2.8 percent.
       These favorable inflation numbers mean that the Federal 
     Reserve has no reason to raise interest rates at their July 
     meeting. The Federal Reserve should hold rates where they are 
     and reserve the option of lowering later in the year.

  Yet, we have heard all kinds of hints and comments made by members of 
the Federal Reserve that, indeed, rates will go up in July.
  A group called the Business Council, a group of chief executives of 
100 of the largest corporations in our Nation, did a recent survey 
which is reported in the May 18 New York Times. Nearly half of them 
stated that it was harder to raise prices in their industry than it was 
6 months ago. Only 9 percent said it was easier. So over half of them 
said it was harder to raise prices.
  Almost all of the respondents urged the Federal Reserve to stimulate 
the economy by lowering rates. The article quoted John Walsh, the CEO 
of the General Electric Co., as saying: ``We do not see industrial 
prices or labor pressures driving inflation upward.''
  Mr. Greenspan did not see the terrible recession and skyrocketing 
unemployment in late 1974 as he advocated fiscal restraint as President 
Ford's chief economic adviser. Mr. Greenspan did not see the recession 
in 1990. And what did Mr. Greenspan see? He saw inflation in some tea 
leaves in 1994 when he doubled the interest rates from 3 percent to 6 
percent in one year. From February 1994 to February 1995, he doubled 
the interest rates. Low inflation. He so indicated that himself.
  Is this the balanced kind of approach that we want from a Chairman of 
the Federal Reserve? I say no. We need someone who has more of a 
balanced approach. We need someone who will give the economy a chance 
to grow, who will give Americans a chance to increase their incomes so 
as to have a better life.
  If inflation starts to rise, then, yes, it is responsible to raise 
rates and do it in a timely and effective manner. But America does not 
need a low growth Chairman of the Fed who slams his foot on the 
economic brakes because of some mirage of inflation that may take place 
in the future.
  Mr. President, I wanted to revisit the topic of Mr. Greenspan's 
actions concerning the 1990 recession. I spoke about that yesterday. I 
spoke about it earlier, when in October 1990, as the minutes now 
reveal, because--again, I want to point this out. By law, the minutes 
of the Federal Open Market Committee are kept sealed for 5 years. I 
hope we can revisit that at some time. I do not believe they should be 
sealed for 5 years--maybe a year, but certainly not 5 years. But now, 
in looking at the minutes of the 1990 meeting of the FOMC, we find in 
October Mr.

[[Page S6288]]

Greenspan saying that--well, to paraphrase it: ``We hear the thunder, 
we hear the lightning. People say there is thunder and lighting, but we 
stuck our hand out the window and it is not raining,'' in response to 
whether or not we are in a recession.
  The fact is, the recession started in July 1990. This is October 
1990. Mr. Greenspan says we are not in a recession. It was not until 
December 1990 that Mr. Greenspan finally admitted, 6 months later, that 
we were in a recession.

  So we had the recession of 1990. Mr. Greenspan finally recognized it. 
His response, ``Well, sometime we will come out of it.'' How does the 
recovery from that recession compare to the other recessions that we 
have had since the end of World War II? The Greenspan Fed was very late 
in moving to lower interest rates to create a more accommodating policy 
and lift us out of that recession, and that was harmful to the 
recovery.
  This is a pretty busy chart. Again, maybe this is one of the reasons 
we do not engage in economic policy discussion around here more, 
because sometimes it does get confusing. But, again, it is really 
simple when you strip it away. What this chart shows is the percent 
decline in interest rates following the bottom of a recession. In other 
words, you get into a recession, you cut interest rates to stimulate 
the economy, and get out of the recession.
  How fast do you cut the interest rates to get out of a recession? 
Here we see that, in the recessions of 1960, 1969, 1957, 1973, and 
1981, we see dramatic drops in interest rates to get us out of those 
recessions. For example, in the 1957 recession interest rates declined 
by 50 percent in 5 months--5 months. Here is 1973. In 1960 there was a 
50 percent decline in about 12 months; the same in 1981. In all these 
times we came out of a recession in a fairly short period of time. Why? 
Because the Fed Chairmen took action to stimulate the economy, get our 
people back to work, reduce unemployment, and get us out of the 
recession.
  Let us look at the recession of 1990. That is this flat line over 
here. We do not get a 50 percent cut in interest rates until almost 34 
months, almost 3 years after the depth of that recession. So, again, I 
have been comparing Mr. Greenspan's actions with those of other Fed 
Chairmen since World War II. I compared earlier GDP growth. Now I am 
comparing his actions recovering from a recession, compared to other 
times. It was too slow, too timid, too much of a struggle, to get out 
of that recession. It is too long a period of time. And what that means 
is that families are hurt, people are unemployed, and the economy 
starts building in a slower rate of growth than what we otherwise need. 
I believe that is also what is affecting us even yet today. So, you can 
see he was much too timid in reducing those interest rates.
  Let me read an article by the Nobel laureate economist, Paul 
Samuelson, who is a professor at MIT. It appeared in the September 1993 
issue of ``Challenge'' magazine. It is titled ``Leaning Against What 
Inflationary Wind?''

       The U.S. economy is not on the verge of overheating at 
     present. If and when the changes, it will be a good time to 
     pump gently on the brakes. That time is not now.

  Mr. Samuelson goes on to say:

       After a dozen years of structural budget deficits and low 
     private sector saving by U.S. families and corporations, 
     economic history and economic science concur in the diagnosis 
     that monetary policy rather than fiscal policy should be the 
     major macroeconomic weapon for assuring a healthy 1993-96 
     recovery and for restoring the share of capital formation in 
     the American economy.

  I will repeat that. What Mr. Samuelson is saying is that monetary 
policy has to be the engine, rather than fiscal policy. Why? Because we 
have these huge budget deficits. There is little we can do. And we have 
years of low savings rates. We do not have that pool to draw on. So it 
has to be monetary policy.
  Mr. Samuelson goes on to say.

       The last five years will go down in the textbooks of 
     economic history as a period of disappointing performances by 
     central banks. America's central bank, the Federal Reserve, 
     began the decade of the 1980s with a stellar report card. 
     Under Chairman Paul Volcker, from 1979 to 1982, remarkable 
     progress was made in wringing out of our economy the double-
     digit stagflation that had built up in the 1970s. Then in 
     1982 and 1983, as I shall describe for its peculiar relevance 
     today, the Fed fires up the American locomotive in a prudent 
     way, leading the United States and the global economies into 
     a needed expansion.

  What Mr. Samuelson is saying, basically, is that--he says--he talks 
about the Bundesbank.

       In particular, the revered Bundesbank has brought on 
     unified Germany a serious recession that it never expected to 
     occur. Outside of Germany, directly and indirectly, the bias 
     of the Bundesbank toward preoccupation with inflation to the 
     neglect of real growth and unemployment has led to a lasting 
     slump for Common Market and other European countries. In the 
     end, the dream of a Maastricht Treaty that would unify the 
     European economy was dashed by Bundesbank intransigence. 
     Unemployment rates in Spain, Italy, and Ireland soared. 
     Waiting upon the German credit expansion that never came, 
     Britain, Italy, and Spain were forced out of the European 
     Monetary Union. Countries like France that accommodated the 
     Bundesbank have been penalized by double-digit unemployment 
     rates. Sweden, with its interest rate forced temporarily up 
     to a 500 percent annual rate in order to have the Kroner look 
     the Mark in the eye, is a spectacle no sage ever expected to 
     see again in the modern world. . . .
       Where an Italy or a Spain face genuine international 
     constraints, Japan's wounds have been self-inflicted and 
     gratuitous. And in wounding herself, Japan has also wounded 
     the U.S. bilateral imbalance with Japan, contributing 
     significantly to the puny 0.7 of 1 percent annual rate of 
     American real GDP growth in the 1993 first quarter. Where it 
     not for involuntary piling up of inventory accumulation, our 
     final real GDP would actually have been declining in 1993's 
     first quarter.

  I did not mean to get bogged down in that, but really what he is 
talking about is he is talking about what the Bundesbank did in Germany 
in terms of focusing only on inflation and ignoring what is happening 
with unemployment and growth. Then he goes on to say:

       Alas, the Federal Reserve has shared in this central bank 
     saga of acting too little and too late against macroweakness 
     on Main Street, U.S.A. It can be said, soberly and with 
     statistical significance, that the defeat of George Bush in 
     1992 and the Republican disappointments in the Senate and the 
     House are the direct result of Federal Reserve misdiagnosis 
     of the seriousness of the 1990-92 state of U.S. demand.

  Again, Main Street, USA, has not, in town meetings, given the Federal 
Reserve such a mandate to do what they have done. Nor has a committee 
of the two Houses, nor a majority vote in either of the Houses. This is 
Mr. Samuelson:

       I believe this to be important not as a matter of history 
     or of general philosophy. It is important because the money 
     market has every reason to believe--even without leaks to the 
     press after Open Market Committee meetings--that this Federal 
     Reserve (the only one we have) is only too prone to (1) 
     engineer higher short-term interest rates, or (2) countenance 
     such higher rates (a) at the first signs of a healthy real 
     recovery--say, a 3.25 percent (annual) growth rate for two 
     successive quarters, or (b) at the first signs of some 
     acceleration of price-level indexes.

  Mr. Samuelson, I think I said it correctly. Basically it is 
important, not as a matter of history or philosophy, it is important to 
America because the Federal Reserve is prone to, No. 1, engineer higher 
interest rates, or, No. 2, countenance such high interest rates at the 
first sign of a healthy recovery, if we go anywhere above--he said up 
to 3.25 percent, but it looks as if we go over 2.5 percent they are 
ready to slam on the brakes.
  (Mr. MACK assumed the chair.)
  Mr. HARKIN. Mr. President, the minority staff of the Joint Economic 
Committee prepared some charts that I think are illustrative of what 
has been wrong with Mr. Greenspan's leadership at the Federal Reserve.
  The first chart simply shows the speed by which the Federal Reserve 
lowered rates. I already went over that chart. I am going to put that 
back up because it goes with these other charts.
  Again, this first chart shows the speed at which the Federal Reserve 
reduces interest rates to get us out of recession. Going all the way 
back to 1957, the Fed acted very strongly to reduce interest rates. But 
in 1990, coming out of that recession, Chairman Greenspan did not act 
decisively and, thus, interest rates stayed abnormally high.
  Here is another chart. Let's see how fast the economy recovered. This 
is sort of the flip side of that last chart. This shows the growth of 
payroll employment from the bottom of the recession compared to those 
previous years going back to World War II.
  So here is the bottom of the recession; here is coming out of it. In 
the previous seven recessions, we see employment gaining rapidly. In 
fact, the

[[Page S6289]]

average of the past seven, in the first 2 years after the depth of a 
recession, we have employment gains of over 7-percent growth.
  What happened after the 1990 recession? Here is Mr. Greenspan: We had 
no growth, no growth for almost 13, 14 months; negative growth. And 
then, finally, we came out a little bit, and after 24 months, we had 
about 1 percent growth in employment coming out of that recession. 
Again, my point being that Mr. Greenspan, first, did not recognize we 
were in a recession; second, when it became apparent we were in a 
recession, he acts too timidly to bring us out of that recession.
  On the other hand, if inflation is threatening, the brakes are 
slammed on at the first sign of a hint of inflation, not real 
inflation, but the threat of inflation. But when it is jobs and 
unemployment, well, we can linger for a while. The result is a very 
dismal record in getting employment back up after a recession. One year 
after a recession--1 year after a recession--basically no jobs at all.
  The third chart that I have shows another related fact, change in the 
unemployment rate. In the other seven recessions, we see considerable 
improvement in lowering unemployment, the proportion of the work force 
without jobs. That, unfortunately, was not the case for the 1990 
recession.
  On average, for the seven recessions prior to 1990, the unemployment 
rate dropped about 20 percent off the rate at the end of each 
recession, and we see that here. There was a tremendous reduction in 
unemployment in the last seven previous recessions.
  What happened after the 1990 recession? Instead of going down, we 
went the wrong direction. Unemployment actually went up. It came down a 
little bit and leveled off after a couple of years, but still not back 
at even the rate at which unemployment was at the height, or I should 
say the depth, of the recession.
  So we were going the wrong way. We had very little recovery at all. 
Again, we need to have a balanced policy that says, ``My gosh, if we 
are going to recover from a recession, we have to reduce 
unemployment.'' We did in all the previous seven, but not in the one in 
1990. Again, my point being that Mr. Greenspan acted too timidly and 
not in the right direction to get that unemployment down.
  So now I return to where I started today, and that is the 1994-95 
period. We have a recession. Mr. Greenspan does not act decisively 
enough. We linger with high unemployment, we linger with low growth, no 
new jobs added, and then we come in to 1993, 1994, 1995.
  It has been almost axiomatically accepted around here and in America 
that if we lower the budget deficit, interest rates will come down. 
That is almost like a mantra that we all enunciate all the time: ``If 
we can reach a balanced budget, interest rates will come down and that 
will save the American people a lot of money.'' ``Reduce that budget 
deficit and we'll get the interest rates down.'' Well, OK.

  In 1993, the first year of the Clinton administration, bold action 
was taken to reduce the deficit. Now, you can argue about whether it 
was a tax increase and all that. We can get into that, and we can 
debate that, too. The fact is that the deficit started coming down. It 
started coming down--actually, I will even give President Bush credit--
actually, the deficit started coming down in late 1992 and early 1993. 
Part of that had to do some with Bush and his policies; some of it had 
to do with the fact when Clinton came in, the President and the 
Congress started talking about a budget that would begin cutting the 
deficit. Based on that, we thought interest rates would come down.
  The budget was passed that year and started to go into effect in 
October 1993. So in October 1993, the budget that we passed went into 
effect. The deficit started to accelerate down. In 2 years, the deficit 
was cut by over 40 percent in 2 years. It is now down--well, right now 
I can say compared to when Mr. Clinton came into office, the budget 
deficit is about 60 percent less. The budget deficit is coming down. 
You would think if the deficit is coming down, surely interest rates 
must come down, too. But after passing the budget of 1993, we kept our 
deficit coming down. Mr. Greenspan, in February of 1994, started 
raising interest rates seven times in one year, from 3 to 6 percent. As 
our deficit was coming down, Mr. Greenspan was raising our interest 
rates.
  My point is that it is not axiomatic, it is not absolutely certain 
that if we reach a balanced budget we will have lower interest rates. 
We will have lower interest rates if, and only if, we have a Federal 
Reserve System, and a Chairman, that will respond to those actions and 
reduce those interest rates as the deficit comes down.
  Obviously, there have to be other factors. When I say that even if we 
have a balanced budget and we have inflation that they should not raise 
interest rates--of course not, the Federal Reserve should respond to 
that. If we have inflation threatening, if inflation is there, yes, 
they have to put on the brakes.
  I am just saying in this period of time, we had no inflation 
threatening, we had high rates of unemployment, underemployed people in 
America, low wage growth, wage stagnation, we had a reducing deficit 
and we had a Chairman of the Fed raising interest rates. Please, 
somebody explain that to me. It defies logic. It can only happen if the 
philosophy that Fed Chairman has is that if he sees a mirage in the 
distance of the threat of inflation, he must raise interest rates.
  I believe that does our country a disservice because we have the 
capacity to grow in America. We have the capacity to grow. We have 
people who want to work. As I said, 348,000 jobs were created last 
month; but 500,000 people went out and looked for a job. People want to 
go to work. Businesses want to expand. Just read the article from the 
National Association of Manufacturers. Businesses want to expand. They 
want to grow. But the policies of the Federal Reserve System is keeping 
that from happening.
  To truly understand the Fed's 1994 seven consecutive rate increases, 
we have go back to the summer of 1993. Mr. Greenspan announced that he 
was abandoning the M2 indicator. I am not going to get into that. That 
is why we get into all these arcane economic terms. But he said he was 
abandoning the M2 indicator in favor of ``real interest rates.'' 
Despite the fact that this M2 indicator fell short of its midpoint 
targets in 6 consecutive years, giving indications of a possible 
recession, Mr. Greenspan instead feared that long-term rates were too 
low in comparison to short-term interest rates.
  As Mr. Greenspan noted in his September 1, 1993, testimony, short-
term rates were nearly zero, and long-term rates were much higher. 
According to Mr. Greenspan, ``This configuration indicates to market 
participants that short-term real rates will have to rise as the 
headwinds diminish if substantial inflationary imbalances are to be 
avoided.'' That was his testimony before the House Subcommittee on 
Economic Growth and Credit Formation, September 1, 1993.
  OK. So for 1993, the Fed predicted a GNP rise of 2.5 percent and 2.5 
to 3.25 percent for 1994. Despite the low projected growth rates and 
the fact that 8 million people were unemployed and another 4 million 
were involuntarily employed part time, Mr. Greenspan feared 
inflationary pressures because of this discrepancy between short-term 
and long-term rates.
  According to Prof. James Galbraith, this was the only justification 
for rate increases in 1994 and 1995. According to Mr. Galbraith, three 
points in Greenspan's February 22, 1994, Humphrey-Hawkins written 
testimony, made 3 weeks after Mr. Greenspan initiated the first of 
seven rate increases, clearly show that the Fed could not have raised 
rates on inflation-fighting policy grounds alone.
  No. 1, Mr. Greenspan said, ``On the inflation front, the 
deterioration evident in some indicators in the first half of 1993 
proved transitory.'' No. 2, there was no clear evidence that expansion 
in 1993 was excessive and was going to carry over to 1994. This is Mr. 
Greenspan's testimony. No. 3, inflation had been falling, as Mr. 
Greenspan himself even noted.
  I am going into this because it has been said that this increase by 
Mr. Greenspan in interest rates and keeping them high--it has only come 
down a quarter of a point since February 1995 --is because of the 
threat of inflation. But in Mr. Greenspan's own words and in his 
written testimony, he basically says there was not inflation.

[[Page S6290]]

  No. 1, Mr. Greenspan said, ``On the inflation front, the 
deterioration evident in some indicators in the first half of 1993 
proved transitory''--transitory, not long term.
  But for the year as a whole, 1993, the Consumer Price Index rose 2.75 
percent, the smallest increase since the big drop in oil prices, since 
1986. Broader inflation measures covering purchases by businesses as 
well as consumers rose even less. Again, these were transitory, not 
permanent, developments.
  The second point, there was no clear evidence that expansion in 1993 
was excessive and was going to carry over to 1994.
  Again, Mr. Greenspan's own testimony: ``Nonetheless, markets appear 
to be concerned that a strengthening economy is sowing the seeds of an 
acceleration of prices later this year by rapidly eliminating the 
remaining slack in resource utilization.'' However, he went on to say, 
``But it is too early to judge the degree of the underlying economic 
strength in the early months of 1994.''
  Wait a minute. Mr. Greenspan, in his testimony, says, `` * * * 
markets appear to be concerned that a strengthening economy is sowing 
the seeds of an acceleration of prices later this year.'' However, he 
says, ``But it is too early to judge the degree of the underlying 
economic strength in the early months of 1994.''

  In February 1994, he starts raising interest rates, when he says ``it 
is too early'' to judge it. That is why I say, Mr. Greenspan raises 
interest rates, slams on the economic brakes, not when inflation is 
threatening, but when, in the distant horizon, he sees a mirage of 
possible inflation. That does a disservice to our country.
  Many of the indicators at that time gave little evidence of rising 
inflation.
  An editorial in the March 14, 1994 Business Week, made it clear that 
Mr. Greenspan had gone too far in his rate increases.

       Since Greenspan raised short-term interest rates by 25 
     basis points . . .

  That was the first of seven increases--

       Long bonds rates have risen nearly twice as much, jumping 
     to about 6.8%. Instead of soothing the savage beasts at the 
     bond market, the Greenspan move appears to have induced a 
     frenzy.
       What has gone wrong, and how can it be fixed? It's tempting 
     to say--

  This is the article from Business Week I am quoting here--

       It's tempting to say that Greenspan's preemptive strike 
     against inflationary expectations was wrong from the start.
       Worse, Greenspan added to confusion in the markets by 
     admitting that the conventional monetary measures were no 
     longer reliable and that he was turning to more exotic 
     measures, including that ``arcane metal,'' gold.

  What is going on here? Business Week says, ``Not so,'' in terms of 
his preemptive strike against inflationary expectations, because they 
are saying there was not any inflation.

       What really spooked the markets was his subsequent 
     confession that he believed monetary policy had been too 
     loose, too long.

  Monetary policy had been too loose for too long.

       The markets inferred that Greenspan's strike was only the 
     first in a series of attacks against inflation. Market 
     players around the world concluded that the Fed would push 
     interest rates much higher in the months ahead.

  Business Week was right on the mark, because in the weeks and months 
ahead, that is exactly what Mr. Greenspan did. This, again, is 
according to Business Week. This is not my judgment. Business Week, in 
their editorial said, what spooked the markets was not really a 
preemptive strike against inflation since there was little threat of 
inflation.
  Let us go back to these charts.
  Mr. Greenspan, according to Business Week, says that he thought that 
monetary policy had been too loose for too long.
  This is 1993.
  Here is the recession, as I pointed out, of 1990, which he did not 
see until we were 6 months into it. Then, as Fed Chairman, he has a 
responsibility to try to get us out of that recession by lowering 
interest rates.
  As I pointed out, this is what happened in the previous seven 
recessions. In each of these instances, interest rates came down as 
much as 50 percent in 5 months, 50 percent in 12 months.
  Mr. Greenspan did not reduce interest rates 50 percent until 30 
months out--about 31 months out, to be correct about it. That takes us 
up to about 1993, I guess. Yet he says the monetary policy was ``too 
loose for too long,'' and thus starts tightening up and raising 
interest rates.
  ``Business Week'' was right, in March 1994. They expected him to keep 
raising it, and, quite frankly, he did.
  ``Worse,'' they go on, ``Greenspan added to confusion in the markets 
by admitting that the conventional monetary measures were no longer 
reliable and that he was turning to more exotic measures,'' of the 
economy, ``including that `arcane metal,' gold.''
  Mr. President, last year in testimony before the Banking Committee in 
response to a question by Senator Sarbanes, Mr. Greenspan admitted 
that, yes, he would be in favor of returning to the gold standard. Now, 
he admitted that he would probably be the only vote on the Federal 
Reserve to do that, but that was his philosophy.
  Perhaps we ought to have debate about that. I wonder how many 
Senators here would like to have a vote on returning to the gold 
standard. How many votes do you think that would get here on the Senate 
floor? I do not know if we would get any. I do not know if anybody 
really feels we ought to return to the gold standard. Maybe that was OK 
in the past, but we live in a different world. This is a global 
economy. We have turned away from using the gold standard as a basis. I 
am just saying the Fed Chairman's philosophy is locked into that. He 
admitted it as recently as 1 year ago.
  There was little justification for the rate increases. The economy 
quickly reacted in a predictably negative way. Instead of nipping 
inflation to help the markets, the seven rate increases threw the 
market into a tailspin. Perhaps one of the most telling indicators was 
that unemployment for years preceding 1994 was above the assumed NAIRU. 
Here we come again to the non accelerating inflation rate of 
unemployment that I talked about earlier, that the Fed seems to be 
looking at. Prior to 1994, this was above the widely-assumed limit of 6 
percent. In 1991 unemployment was 6.7 percent, in 1992 it was 7.4 
percent, and in 1993 unemployment was 6.8 percent. Yet somehow he says 
we have to raise interest rates.
  The third and final point about why the 1994 rate increases were 
unnecessary was this: The threat of inflation had been falling. To say 
again, the threat had actually been falling. Again, here is Mr. 
Greenspan in his February, 1995 Humphrey-Hawkins testimony:

       Fiscal and monetary policy are important among those forces 
     and have contributed to the decline in inflation expectations 
     in recent years along with decreases in long-term interest 
     rates. The actions taken last year to reduce the Federal 
     budget deficit have been instrumental in this regard.

  That was a very interesting statement by Mr. Greenspan last year.
  There are two points that need to be made here. First, I do not 
necessarily disagree with him about discarding M2 as an indicator in 
favor of real interest rates. What we do have a concern about is M-2 
showed that the money supply was shrinking and the economy might be 
slowing. Instead of focusing on other indicators that might show a 
slowing of the economy, Mr. Greenspan grasped on to real interest 
rates. The discrepancy between short and long-term rates was evident 
and could be clearly used as a justification for raising rates. That is 
what he said.
  Second, it should be clarified and reinforced that Mr. Greenspan and 
the Fed labeled the rate increases as a preemptive strike and not a 
reaction to accelerating inflation that would have clearly justified an 
increase in interest rates.
  Let me read the July 10, 1995, article from ``U.S. News & World 
Report'' by Mortimer Zuckerman. In his July 10, 1995, editorial, he 
says:

       Ouch! The squeeze is back. In May 101,000 jobs disappeared. 
     The workweek for most Americans is falling while the number 
     of people filing claims for unemployment is rising. 
     Don't blame it on the business cycle: The current slump is 
     the handiwork of the Federal Reserve Board, an institution 
     that is signally failing the nation. The Fed raised short-
     term interest rates seven times in roughly a year, 
     doubling their levels and whacking key rate-sensitive 
     industries such as housing and autos. Boom, the robust 
     expansion of '94 has turned into the stagnation of mid-
     '95.
       Why, you may ask, did the Fed do this? It surely was not 
     responding to inflation. Unit

[[Page S6291]]

     labor costs, the basic fuel of inflation, grew by less than 1 
     percent last year (and actually fell by 2.3 percent in 
     manufacturing). Inflation at the retail level has been 
     running at 3 percent or less for three years, the best 
     performance in three decades--and the experts, including Fed 
     Chairman Alan Greenspan, believe even that is overstated by 
     as much as a full percentage point because of statistical 
     flaws.

  Now, I'm reading from the U.S. News & World Report, July editorial, 
by Mortimer Zuckerman.

       No, what the Fed had in mind was an attack on inflationary 
     expectations--the notion that, if left unchecked, the 
     economic buoyancy of late 1993 would surge into '94 and lead 
     to rapidly increasing prices rather than to rapidly 
     increasing jobs.

  The economic buoyancy, this is the economic buoyancy that Mr. 
Zuckerman is talking about, not an economic boom, but at least we are 
talking about getting better. Too slow, but by 1993, 3 years out from 
the recession, we were finally starting to get a little bit better.
  Mr. Zuckerman goes on:

       Overlooked or simply ignored were several mitigating 
     factors--that major corporations were still laying off tens 
     of thousands of employees . . .

  As I mentioned, the unemployment rate for 1993 was 7.4 percent. That 
was up from the year before. Again, another example of the Federal 
Reserve not fighting unemployment by failing to reducing interest rates 
after the last recession. Also overlooked was ``that real wages for 
most Americans were declining, that a true world economy had radically 
altered the ways and means of production.''

       Now, what was supposed to be a ``soft landing'' to slower 
     growth is fast turning into something else. Real retail 
     sales, the most important factor in our economy, dropped at 
     an annual rate of 1.9 percent in the first two months of the 
     second quarter. . . Consumer confidence plunged a dramatic 9 
     percentage points in the past month. . . .
       The latest Fed failure underlines its mismanagement of the 
     monetary side of the economy over the past five years.

  These are not my words. These are the words of Mr. Zuckerman, editor 
of ``U.S. News & World Report.''

       In the last decade of the 20th century, too little, too 
     late, seems to be engraved in its institutional seal. In 
     1989, it sowed the seeds for the recession of 1990-91, then 
     slowed the recovery by not easing up quickly enough.

  Again, evidenced by that chart.
  ``Is the Fed flying blind?'' Mr. Zuckerman asks.

       You have to wonder. Its view is that the sustainable level 
     of economic growth is 2.5 percent. But the notion that any 
     growth rate above this level would cause an increase in the 
     rate of inflation through shortages of labor, materials and 
     manufacturing capacity, is questionable. The Fed 
     underestimates the actual rise in manufacturing capacity put 
     in place and overestimates the dangers of wage inflation 
     given the historic shift in the balance of bargaining power 
     between management and labor, the large number of people 
     working part time or on temporary jobs and the continued 
     corporate restructuring. Beyond that, economic 
     globalization has provided the United States with 
     additional capacity and cheap labor to expand production 
     without price increases.

  Mr. Zuckerman says:

       We can have growth higher than 2.5 percent and an 
     unemployment rate lower than 6 percent and still not have an 
     inflationary surge. In the 1960's, after all, we had an 
     unemployment rate of 4.8 percent with an average inflation of 
     only 2.3 percent. The Fed should review its performance in 
     the '60's and '80's. Five years into the expansion of the 
     '60's, when growth seemed to stall, the Fed moved rapidly and 
     cut interest rates by 2 full points, extending the expansion 
     to a record nine years. The 1980's expansion turned into the 
     second longest in postwar history, again because the Federal 
     Reserve cut rates when it first spotted signs of economic 
     weakness in 1984 and 1986.

  That was under Chairman Volcker.
  Mr. President, in sum, the rate increases in 1994 and 1995 can be 
interpreted as another example of Mr. Greenspan searching for excuses 
to raise rates as a justification to eliminate inflation.
  Again, I am going to refer to this chart as often as I can. The 
American people ought to know this. In 1 year, February 1994 to 
February 1995, he doubled interest rates. Since February 1995, to this 
date--actually to June 1996--they have only come down 3 quarters of a 
point, with no inflation threatening.
  The Associated Press story reported November 12, 1994:

       Economists representing interests from labor unions to big 
     corporations accused the U.S. Central Bank on Friday of 
     pursuing an ill-advised monetary policy by fighting a phantom 
     inflation threat to appease bond traders on Wall Street. 
     Lawrence Chimerine--I am sorry if I mispronounced the name--
     the chief economist at the Economic Strategy Institute, a 
     business-backed think tank in Washington, DC, said that long-
     term interest rates have risen faster since February of 1994 
     when the Federal Reserve started its increases than at any 
     other time in U.S. history.
       Any further ratcheting up of interest rates really runs the 
     risk of overkill and a recession.

  That was said on November 12, 1994. I believe there were two other 
rate increases after that period of time.
  It should be noted that the Fed raised rates--I am sorry, it was 3 
days after this story was written, and again in February 1995--two more 
times. In the aftermath of the rate increases, the Investors Business 
Daily had this to say about Mr. Greenspan's efforts. This is an 
editorial in Investors Business Daily, dated April 17, 1995:

       If former Defense Secretary, Robert McNamara, can own up to 
     his horrendous errors on Vietnam, why can't Federal Reserve 
     Chairman Alan Greenspan end his misguided campaign against 
     inflation?
       The McNamara memoir published last week . . . is a stunning 
     admission of failure. He confesses that his over-reliance on 
     numbers and failure to understand the human consequences of 
     his actions led to the tragedy we know today as Vietnam.
       McNamara was one of the postwar ``whiz kids'' who thought 
     they'd elevated management to a science. The former President 
     of Ford Motor Company, he thought his number-crunching 
     expertise, statistics, and arcane mathematical formulae were 
     all he needed to ``manage'' a war.
       Pride? Arrogance? Some failures can't be described with 
     mere words. The bottom line on that Vietnam ``strategy'' is 
     some 58,000 names on a black wall in Washington, DC, and 
     continued tyranny in Southeast Asia.
       We were struck by McNamara's admission of error because his 
     fascination with data is shared by Fed Chairman Greenspan--
     who is waging a long, costly and misguided war of his own. 
     Like McNamara, Greenspan is arrogantly using his numbers 
     expertise to fight the last war--the 1970's battle against 
     inflation.
       And just as McNamara's antiseptic ``body counts'' seemed to 
     blind him to both the failure and the human costs of his plan 
     for winning the war, Greenspan seems to miss the costs to the 
     real economy--jobs, incomes, goods and services--of his 
     campaign against phantom inflation.
       We've heard all the arguments for continuing the battle: 
     The U.S. is enjoying the best of all possible worlds, with 
     rapid growth and low inflation. The Fed appears to have 
     engineered a ``soft landing''--

  How many times we have heard that phrase?

     in which the economy drops gently onto a long, slow glidepath 
     of steady, noninflationary expansion.
       We don't buy it.

  I am still quoting from Investors Business Daily.

       As the last recession showed, a soft landing can very 
     easily turn into a crash landing, or a victory into a rout.
       After seven interest rate hikes in a little over a year, 
     the Fed is flirting with disaster. Businesses--as opposed to 
     coupon-clippers--are plainly worried.
       Monetary policy in this country is controlled by bond 
     traders who live in high-rises and are completely out of 
     touch with reality.
       The words of a radical? Hardly. Jerry Jasinowski, the 
     president of the National Association of Manufacturers, said 
     that six months ago, before the last two rate hikes. Others 
     in business echo his comments.
       The signs of a slowdown are now widespread. Retail sales 
     are weak, auto sales are declining, durable goods orders have 
     rolled over, new-home sales have tanked, money supply is 
     headed south and the index of leading economic indicators is 
     signaling sluggish growth at best.
       . . . As most economists know, it takes six months to two 
     years for the full effects of a Fed tightening to be felt. 
     The Fed's recent tightening binge--an unprecedented doubling 
     of rates in just 13 months--probably won't finish hitting 
     home until 1996.
       Meanwhile, inflation remains nowhere to be seen--despite 
     the constant fears of bond market vigilantes who believe 
     jobs, prosperity and hyperinflation are somehow linked.

  That was Investors Business Daily, and that was in 1995. Similar to 
1974, when the WIN--the whip inflation now--policy helped inflation 
along by raising taxes on oil, the interest rate increases in 1994 may 
have made it more difficult to actually fight inflation in the future 
because they raised the price of obtaining a car loan, home mortgage, 
or a student loan. The 1994 increase failed on all counts, including 
even Mr. Greenspan's. According to the University of Denver economist, 
Randall Wray, ``The Fed's policy shift after February 1994 was a 
resounding failure by Mr. Greenspan's own criteria. Long-term rates 
immediately rose. The Fed's action led to a run out at the long end of 
the market, causing an estimated $1 trillion loss.'' Thus, long-term 
rates

[[Page S6292]]

have been high because the market quite correctly feared other rate 
increases and not because of high expected inflation. Once these became 
reality, the bond market plummeted and stock prices experienced 
volatility because additional rate hikes were feared.

  He went on to note that real economic growth for 1994 turned out to 
be less than the bottom of the Fed's predicted range. By the end of 
1995, the economy was growing at a rate less than 1 percent. As data 
accumulated that the economy was slowing, the Fed reversed course and 
lowered short-term rates by one-quarter of 1 percent three times. Thus, 
we get down to 5.25 percent.
  There is little evidence to suggest that small reductions would have 
any significant effect on the economy. However, the frequent 
interventions were sufficient to keep the markets guessing.
  In late February of this year, Greenspan sent shock waves through the 
markets when he suggested that policy might tighten, but he was forced 
to immediately clarify his position by indicating that policy was 
likely to loosen. But there is more.
  In a January 2, 1995, editorial in the Washington Post, Mr. Gerome 
Weinstein of Columbia University observed that six increases in 
interest rates in less than a year suggest that Mr. Greenspan has 
forgotten that the economy does not change course quickly or easily. An 
interest rate change can be expected to take about 18 months to work 
its way through the complexity of the economy before it has a lasting 
effect. Six increases in 11 months would suggest that Mr. Greenspan and 
the Fed are impatient.
  Mr. President, why do I go through all of this? Why have I cited all 
of these economists--Mr. Zuckerman of U.S. News & World Report, Mr. 
Jasinowski of the National Association of Manufacturers, and a host of 
other writers? Why go into all of this? Because, as I have said many 
times, there is a common thread that ties Mr. Greenspan's actions 
together as we have seen again and again and again from his days as 
Chairman of the Council of Economic Advisers to the present.
  Mr. Greenspan has consistently shown the same two tendencies. First, 
he misjudges the signs of an oncoming recession. Mr. Greenspan often 
comes to the correct economic conclusions, but way, way too late.
  Chief economist David Jones stated that Greenspan is so preoccupied 
with arcane numbers, he tends to miss big trends. As a result, he often 
makes the right moves but at the wrong time. Timing is not his strong 
suit.
  According to U.S. News & World Report editor Mortimer Zuckerman, Alan 
Greenspan and his board at the Federal Reserve make ladies who read tea 
leaves pretty hot. The Fed foresaw a dangerous boom in 1989, tightened 
interest rates, and got a long recession instead.
  The second aspect of the common thread throughout Mr. Greenspan's 
adult life is that he does not act decisively enough to pull the 
economy out of recessions because of his inordinate fear of inflation.
  Again, let us go back. Remember the 1974 whip inflation now plan, the 
WIN plan. As Chairman of the Council of Economic Advisers, Mr. 
Greenspan designed an economic plan that raised taxes, worked to limit 
consumption, and resulted in an unemployment rate of 9 percent. 
According to Mr. Zuckerman, the same held true in 1991. I quote:

       Having rushed to that wrong conclusion--

  The dangerous boom of 1989.

     they dithered for so long in correcting it that we did not 
     come out of the recession until 1991-1992. In 1994, when 
     recovery was really starting to happen, they went back to 
     their tea leaves and got in the ratchet reflection mode, 
     again battling a phantom inflation, an inflation they 
     admitted was not there. It was an expectation.

  Editorial, August 7, 1995, U.S. News & World Report.
  Again, what I talk about is the mirage on the horizon of possible 
inflation. In fact, Mr. Greenspan even seems to publicly ignore 
statistics that might indicate that he does not need to raise rates to 
fight inflation. For example, in his Humphrey-Hawkins testimony on 
February 27, 1995, Greenspan did not read the most optimistic portion 
of his prepared remarks. I want to comment on that.
  There were prepared remarks that Mr. Greenspan had. But in his 
testimony of February 27, 1995, he kind of skipped over it. Here is 
what it said.

       These developments do not suggest that the financial tender 
     needed to support the ongoing inflation process is in place.

  An amazing statement by Mr. Greenspan, someone who has just raised 
interest rates--doubled over a year, seven rate hikes. In February 
1995, at the end of the last rate hike, he says in his written 
testimony that:

       These developments do not suggest that the financial tender 
     needed to support the ongoing inflation process is in place.

  What is going on here, Mr. President? Mr. Greenspan, in his written 
testimony, says that it is not there, that the financial tender needed 
to support the ongoing inflation process is not there. We have high 
interest rates.
  Again, I am referring to the crucial 1995 Humphrey-Hawkins testimony 
and Greenspan's rejection of the idea that the economy's potential for 
the sustained growth rate was much above the current level of about 2.5 
percent.
  Here again are Mr. Greenspan's own words.

       But while most analysts have increased their estimates of 
     America's long-term productivity growth, it is still too soon 
     to judge whether that improvement is a few tenths of a 
     percentage point annually or even more, perhaps moving us 
     closer to the more vibrant pace that characterized the early 
     post-World War II period. It is fair to note, however, that 
     the fact that labor and factory utilization rates have risen 
     as much as they have in the past year or so does argue that 
     the rate of increase in potential is appreciably below the 4 
     percent growth rate of 1994.

  Again, that is his testimony before the Banking Committee of February 
22, 1995.
  So, Mr. President, a common thread is misjudging what is happening 
and then mishandling how to pull us out of the recession because of his 
absolute fear of inflation.
  Mr. President, I think what we see here is a Fed Chairman whose 
economic philosophy--again, I say this with all due respect. I hold no 
personal animus at all toward Mr. Greenspan. People speak of him in 
highly glowing terms. I have had, as far as I know, only one meeting 
with him in my life in my office, when he was gracious enough to ask 
for a meeting. He came down to my office. Several of us met in our 
office with him, several Senators.
  It was a fascinating discussion. We were just kind of getting into it 
when the bells rang and we had to go vote. But I believe our job as 
Senators is not to approve people, to put them into a position simply 
because they may be nice people or they have a lot of friends or they 
move in acceptable social circles.
  Our job, I believe, especially in this important position, Chairman 
of the Federal Reserve Board, is to look at the record of the person 
who is nominated to fill that position. What has been that person's 
economic record? How accurate have they been in the past? What is their 
philosophy? And, especially, we must ask those questions if it is a 
person who has been Chairman of the Fed and seeks to be renewed in that 
position.
  I think we, in this body, have been too prone to just rubberstamp 
those nominees who have come to us for positions on the Federal Reserve 
Board, and especially as Chairman.
  I will admit, in all candor and frankness, that I voted for Mr. 
Greenspan, on one occasion, to be in the Fed. I will admit, in all 
candor, I did not look at the record all that much either. But this 
time, with what has happened in 1993, 1994, 1995, with the efforts of 
this administration to reduce the deficit and the efforts of this 
Congress, and I speak of both Republicans and Democrats, in biting the 
bullet--oh, we may have our differences on where to trim and what to 
cut, but I think basically Members of this Congress have worked hard to 
reduce the deficit. And I believe the administration has, too. More 
needs to be done.
  The administration has acted courageously to reduce the size of the 
Federal Government. But if what we are rewarded with is the Chairman of 
the Fed keeping interest rates unduly high, keeping the economy from 
growing, then perhaps our work will be in vain.
  We have the potential to grow in this country. Everyone that I know 
sees it

[[Page S6293]]

out there. It does not take an economist to go out on Main Street, to 
go in our businesses, to talk to working families, to know that that 
pent-up energy is there, that ability is there.
  You can use the figures, and they are there. They show this: Our 
manufacturing sector is ready to go; small business is ready to move; 
our average working families are ready for a wage increase, which they 
need and can use, and which need not be inflationary. The size of the 
labor force can grow substantially in the future. But, I am sorry to 
say, the Chairman of the Fed is not allowing that to happen.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. 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 just have one more item I want to cover. 
It should not take me more than maybe 10 minutes, I hope, and then I 
will be finished with my statement for today. I know others wanted to 
know about that. I understand there are some problems. I want to be as 
accommodating as possible.
  I want to cover, however, just briefly, for the record, the issue of 
NAIRU. I said earlier today I was going to get into that, and I want to 
talk about NAIRU, the nonaccelerating inflation rate of unemployment, 
and what it is and why it seems to have such a hold on us.
  So what is NAIRU? Let me just read some comments, and I will get into 
NAIRU for a few minutes. Dana Mead, the chief executive of Tenneco and 
chairman of the National Association of Manufacturers, had it right 
when he said that ``NAIRU is to economics what the Nehru jacket is to 
fashion--outdated.''
  Robert Eisner, professor emeritus at Northwest University, whom I 
quoted earlier today several times, argues that one can actually reduce 
inflation by keeping unemployment under its natural rate.
  He developed this argument in an article entitled ``Our NAIRU 
Limit.'' That was in the American Prospect magazine, spring of 1995. I 
thought I would quote a little of it to talk about NAIRU and what it 
is.
  First of all, Mr. Eisner says, starting his article:

       We mustn't have it too good. Too much growth--too little 
     unemployment--is a bad thing. These are not the idle thoughts 
     of economic nail-biters; they are the economic policy of the 
     United States. After real growth of domestic product hit 4.5 
     percent in the last quarter of 1994 and unemployment dipped 
     to 5.4 percent in December--

  Guess what?

     the Federal Reserve moved on February 1 to raise interest 
     rates for the seventh time in less than a year. Why? To slow 
     a too rapid rate of growth and stop or reverse the fall in 
     unemployment. Why do that? To fight inflation.
       Ordinary people may wonder. . .
       Hard nosed economic analysts and business leaders are also 
     raising questions. They point to technological advances and 
     downsizing in U.S. industry and suggest that productivity and 
     output potential may well be rising more rapidly than the 2.5 
     percent long-term growth rate that Greenspan and others think 
     marks the outer limit for economic growth. Furthermore, as 
     people lose old, high-paying jobs and look desperately even 
     for lower-paying employment--

  We know how true that is--

     there is slack in the labor force. Perhaps most important, 
     increasing globalization and world competition may limit the 
     ability of American firms to raise prices and workers to push 
     for higher wages.
       These heretical observations have so far failed to dent the 
     dominant dogma haunting economic policy. The central tenet of 
     that dogma is a concept familiarly known among economists as 
     the NAIRU--the ``nonaccelerating-inflation-rate of 
     unemployment.'' While unknown to the general public, the 
     NAIRU has become one of the most powerful influences on 
     economic policy this century. My recent work, however, shows 
     that even on the basis of a conventional model used to 
     estimate the NAIRU, there is no basis for the conclusion that 
     low unemployment rates threaten permanently accelerating 
     inflation. And, according to an alternative model more 
     consistent with the data, inflation might actually be lower 
     at lower unemployment levels than we are experiencing today.
       The basic proposition of the NAIRU is simple: Policymakers 
     cannot use deficit spending or an increase in the money 
     supply to reduce unemployment below some ``equilibrium'' 
     rate, except at the cost of accelerating inflation.
       The concept of the NAIRU, derived from Milton Friedman's 
     notion of a ``natural rate of unemployment,'' rejects the 
     assumed trade-off between unemployment and inflation 
     described by the Phillips curve, named after A.W. Phillips, 
     an innovative economist from New Zealand.

  Thus, according to the NAIRU, fiscal or monetary policies aimed at 
reducing unemployment would leave us like a dog chasing its tail. If 
policy were aimed at keeping total spending sufficiently high to keep 
unemployment below its ``natural rate,'' inflation would rise more and 
more rapidly.
  In this view, the only way to reduce unemployment, except possibly in 
the short run, is to change conditions affecting the supply of labor--
for example, by cutting the minimum wage, reducing or eliminating 
unemployment benefits, or upgrading the skill of workers.
  On the contrary, he says, that we ought to be trying to reduce 
unemployment, not only by supply-side measures, but by ensuring that 
the economy is not starved for adequate aggregate demand or 
productivity for increasing public investment.
  NAIRU--Non-Accelerating Inflationary Rate of Unemployment, which we 
are shackled by it.
  Later in his study, Eisner goes on to replicate CBO's August 1994 
economic and budget outlook and comes to a very important conclusion. 
And I quote:

       It takes still higher unemployment to break the back of 
     inflation. But high enough unemployment does eventually turn 
     inflation negative. . .
       The low-unemployment paths shown, however, offer quite a 
     different picture. At 5.8 percent unemployment, contrary to 
     Alan Greenspan's fears, there is no accelerating inflation. 
     By the end of the century, inflation settles at about 4.4 
     percent. Strikingly, at lower unemployment rates, inflation 
     is no higher. At 4.8 percent unemployment, the simulation 
     shows inflation coming down to 3.6 percent. At 3.8 percent 
     unemployment, inflation comes down to 2.9 percent. At 2.8 
     percent unemployment, inflation at the end of 1999 is down to 
     2.1 percent.

  Eisner also argues the long-term rate of growth will increase with 
higher employment levels.

       Over a longer period we should be educating and investing 
     in human capital. . . . We should be bringing millions of 
     workers who are essentially out of the labor force into the 
     labor force. We can make them productive and get them off 
     welfare. There is a lot of production that can take place 
     because of that.

  So, again, a completely contrary concept of what Mr. Greenspan is 
saying. Mr. Eisner, and others, through models that they have developed 
and simulations, show an alternative analysis--that through lower rates 
of unemployment--higher rates of full employment, you might say--that 
inflation actually comes down. Again, I believe there is so much pent-
up energy and ability in the American work force that we can grow 
faster.
  But regardless of future predictions of the effect of unemployment on 
inflation, it is clear, I believe, that the NAIRU is overestimated.
  The 1996 economic report of the President stated that:

       For over a year now the unemployment rate has fluctuated 
     narrowly around 5.6 percent, yet the core rate of inflation 
     has remained roughly stable rather than risen.

  The economic report goes on to say:

       This recent evidence strongly argues that the sustainable 
     rate of unemployment has fallen below 6 percent, perhaps to 
     the range of 5.5 to 5.7 percent. The Administration's 
     forecast falls on the conservative end of this range by 
     projecting the unemployment rate of 5.7 percent over the near 
     term.

  This same paragraph also states:

       Wage inflation, as measured by the employment cost index, 
     also remains stable.

  It is entirely possible that the rate could be adjusted downward.
  James Robinson, former CEO of American Express, echoes the words of 
Dana Mead.

       Like that Nehru jacket, the NAIRU concept is outdated. In 
     fact I would say that NAIRU is a jacket itself--it's like a 
     straitjacket on our economy.

  This is what Mr. Robinson had to say:

       That frame of reference for growth, called maximum 
     sustainable capacity by economists, was largely developed in 
     the 1950's, 1960's, and 1970's. Today, the parameters of 
     growth are substantially expanded. The deeper integration and 
     breadth of competition that has come to the global economy on 
     only the past decade have opened the way to more robust 
     growth even among the developed Nations. The Fed has been 
     cautious to

[[Page S6294]]

     a fault. It makes a tragic mistake by erring on the side of 
     slow growth, denying Americans a more dynamic economy, 
     diminishing living standards, and cutting off capital to 
     emerging markets.

  Prof. James Galbraith builds on this point when he argues:

       In fact NAIRUvians--

  I like that word.

     NAIRUvians have never successfully predicted where the 
     barrier would be hit.

  That is a minimum level of unemployment.

       The estimated NAIRU tracks actual unemployment.

  Professor Galbraith says they do not know where that barrier is, that 
minimum level of unemployment. He says:

       [Moreover] the estimated NAIRU tracks actual unemployment. 
     When unemployment increases, conservative economists raise 
     their NAIRU. When it decreases, they predict inflation, and 
     if inflation doesn't occur, they cut their estimated NAIRU. 
     There exists a long and not-very-reputable literature of such 
     estimates.

  For example, notable NAIRU supporter Paul Krugman:

       Places present estimates of the NAIRU from about 5 to about 
     6.3 percent, with most estimates clustered between 5.5 and 6 
     percent.

  Mr. President, I understand that the Senator from Florida wanted to 
get some housekeeping items done. I will yield to him whatever time he 
may consume for that.
  The PRESIDING OFFICER (Mr. Kyl). The Senator from Florida.
  Mr. MACK. Mr. President, I inquire of the Senator from Iowa how long 
he intends to go beyond this point. The reason I inquire is because I 
do not want to inconvenience the Chair as well.
  Mr. HARKIN. In the interest of comity--I understand that we have 
problems after 3:45. I will cut my comments short. I just want to 
finish one thing on NAIRU. It is now 3:40. I know that we have a 
problem here. I want to be accommodating. So I will just wrap up my 
remarks very shortly. In like 60 seconds I will yield to the Senator.
  Mr. MACK. I thank the Senator.
  Mr. HARKIN. Mr. President, I wanted to discuss NAIRU because I think 
it is very important, because I think it is acting as a straitjacket. I 
think that Mr. Greenspan and the economists at the Fed are looking at 
NAIRU and abusing it. And in so doing, they are abusing what I believe 
to be the capacity of our economy to grow. I believe there is an equal 
body of evidence and data to suggest that we can reduce unemployment 
and at the same time reduce inflation.
  I believe it is worth the relatively small risk to go ahead and get 
these interest rates down, stimulate the economy. Let us have some 
growth. Why is it that we have to accept growth of 2 to 2.5 percent? 
That is like saying, ``America, a C-average is fine.'' I believe 
America can do a B-plus, and A. We can do it without inflation. That is 
why I want to talk about NAIRU.
  I will continue next Thursday on the Greenspan nomination. I will use 
my time at that time to finish my comments on NAIRU. I thank the Chair 
and I thank the Senator from Florida. I yield the floor.
  The PRESIDING OFFICER. The Chair appreciates the courtesies of the 
Senator from Iowa.
  The Senator from Florida.
  Mr. MACK. I thank you, Mr. President. I too want to thank the Senator 
from Iowa for his consideration.

                          ____________________