[Congressional Record (Bound Edition), Volume 147 (2001), Part 3]
[Extensions of Remarks]
[Pages 4244-4245]
[From the U.S. Government Publishing Office, www.gpo.gov]



                         SOUND ECONOMIC POLICY

                                 ______
                                 

                         HON. MICHAEL G. OXLEY

                                of ohio

                    in the house of representatives

                       Wednesday, March 21, 2001

  Mr. OXLEY. Mr. Speaker, I commend to my colleagues' attention the 
following article, ``Can the U.S. Live With a Sounder, Saner Stock 
Market?'' The author correctly points out that despite all of the 
recent attention on interest rates, the condition of our capital 
markets and the health of the U.S. economy are strongly influenced by 
the decisions that are made on trade policy, regulatory relief, and tax 
cuts. If we get those growth policies right, we will do a great service 
for the increasing number of Americans who are investing to improve 
their everyday lives and saving for their retirement.

             [From the Wall Street Journal, Mar. 20, 2001]

         Can the U.S. Live With a Sounder, Saner Stock Market?

                          (By George Melloan)

       Alan Greenspan has demonstrated that he can curb 
     ``irrational exuberance'' in the stock markets, or so the 
     conventional wisdom goes. Today, he presumably will try to 
     perform a more difficult feat, arresting the world-wide 
     decline in equities that he has been widely accused of--or 
     credited with--causing. The auguries for his success are not 
     especially favorable. The markets weeks ago factored into 
     prices the likelihood of a Federal Reserve rate target 
     reduction, but that didn't prevent last week's steep slide.
       The concept of Mr. Greenspan as a deus ex machina who 
     intervenes occasionally to change the course of markets is 
     overrated. His ``irrational exuberance'' speech in December 
     1996 rattled investors. But that may only have been because 
     he was remarking on something that was obvious to almost 
     everyone: Some stocks were selling at prices far in excess of 
     their underlying values.
       It certainly didn't stop the bull run, which continued 
     another three years until its peak early last year. Probably, 
     a series of rate-target increases in the late 1990s by the 
     Fed acted as something of a brake on stock markets and an 
     American economy heavily fueled by credit. But the overriding 
     factor was that stock averages last year had reached a never-
     never land that even the most optimistic logic could not 
     justify. Consumers, responding to the ``wealth effect'' of 
     their paper riches, piled up debt. When stocks sank last 
     year, household net worth declined for the first time since 
     records have been kept. Quite likely, household balance 
     sheets have deteriorated further this year.
       Up until last week it appeared that the Dow had stabilized 
     at around the 10500 level, despite a slowdown in economic 
     growth and a series of warnings of lower-than-expected 
     earnings from major corporations. But the Nasdaq, which had 
     reflected some of the greatest price excesses, continued its 
     downward spiral and the Dow ultimately followed, dropping 
     below 10000. The evaporation of liquidity caused by falling 
     prices in one or two markets ultimately affects all markets 
     in this age of globalization, so Europe, Japan and Southeast 
     Asia all took big losses as well. Europe, as measured by the 
     FTSE index, was hardest hit, with a 9% decline, compared to 
     7.7% in the Dow.
       Many investors in high-flying stocks are licking their 
     wounds. Money runners on Wall Street have lost some of the 
     brash self-confidence of a year ago. Brokers who for years 
     have been assuring customers that no investment can beat 
     equities over time have a bit less confidence in that 
     assertion. There is a realization dawning that maybe stock 
     values do have some link to earnings and that a stock price 
     that might take the company 40 years to earn could be a tad 
     high.
       This new sobriety is a healthy thing. The economists who 
     have been arguing that the U.S. was developing an asset 
     bubble, like Japan in the 1980s, have been appeased. Their 
     concept that there is such a thing as asset inflation, fueled 
     by liberal credit policies, has been reinforced. Yet the 
     oversold markets pretty much have taken care of themselves, 
     without tempting interventions by politicians, who sometimes 
     in the past (in the 1930s, for example) have jumped in to 
     make things worse. Investors now know that stocks go down as 
     well as up, a useful lesson.
       The new sobriety befits equity markets that now have a 
     different function from the one they had 10 or 15 years ago 
     when they were mainly the province of the well-to-do. Today, 
     some 60% of Americans have a beneficial ownership in stocks. 
     Mutual funds have replaced savings accounts as the preferred 
     investment of small savers. Private pension funds holding the 
     retirement money of millions of Americans are heavily 
     invested in stocks. These new, steady, sources of funding 
     give stock markets a greater stability than before. But they 
     also mean that stocks play a greater role in household 
     balance sheets, and hence in the holder's perception of 
     whether he is getting richer or poorer.
       It is for this reason that policy makers need to give 
     attention to the macroeconomy that underlies corporate 
     stocks. It suffered from great neglect during the latter 
     stages of the Clinton administration, even as the signs of an 
     economic slowdown mounted. The administration allowed the 
     beginnings of a new round of trade opening negotiations in 
     Seattle to be scuttled by organized labor, the Naderites and 
     assorted zanies. Mr. Clinton made only a feeble and belated 
     effort to get fast track legislation to speed new trade 
     agreements. Thus years have been wasted in

[[Page 4245]]

     starting negotiations for new multilateral trade and 
     investment pacts that invariably re-energize the global 
     economy.
       Regulatory burdens continued to pile up. The EPA was set on 
     automatic to crank out new restrictions that impose costs and 
     yield either no benefits, or negative consequences. The 
     previous administration kow-towed to ``environmentalist'' 
     claims of a coming ``global warming'' disaster, despite a 
     large body of scientific proof that no such trend exists. 
     More public lands, including sites rich in oil and gas, were 
     locked up as ``wilderness'' areas.
       The passage of federal tax cuts last year, when they would 
     have come in time to stimulate a flagging economy, was 
     blocked by President Clinton. Democrats this year are still 
     resisting even the modest initial tax cut tranches proposed 
     by George W. Bush, styling themselves as the new guardians of 
     fiscal responsibility. In other words, the economy is not 
     going to get any help soon from tax cuts. That vaunted 
     federal surplus could vanish quite rapidly if the American 
     economy goes into recession. The old saying, penny wise and 
     pound foolish, applies here.
       Despite all these forms of neglect, the U.S. still has a 
     powerful economic base, U.S. demand kept Asia afloat after 
     the 1997 meltdown. It has helped revive Mexico and has given 
     Europe a market. The discovery by Americans of the marvelous 
     communications potential of the Internet moved computers from 
     the purely business realm into the home as a consumer 
     product. Information technology is for real, even if it was 
     oversold on stock markets during the dot-com rage.
       Consumer confidence, as measured by a monthly University of 
     Michigan survey, remains reasonably upbeat. Employment is 
     high, despite prospects of some big corporate layoffs. All 
     that has happened to the American economy so far has been a 
     slowing of growth, not a recession. The Fed is trying to 
     ensure adequate liquidity while at the same time tending to 
     its fundamental job of trying to keep the dollar sound. And 
     finally, stock markets are safer places for money than they 
     were a year ago, which is no bad thing.

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