The following letters are in response to
Nadji Tehrani's March 2001 Publisher's Outlook, "Q:
How Do You Screw Up A Perfectly Great Economy? A: Ask Alan Greenspan."
Dear Mr. Tehrani:
Congratulations on your excellent and insightful column encouraging Dr.
Alan Greenspan's retirement (March 2001). Every word was right on target,
and the logic of your conclusion was fully substantiated.
I was surprised when Dr. Greenspan did not listen to labor secretary
Robert Reich. Reich was arguably the most respected member of the Clinton
cabinet, and it was true folly for Greenspan to disregard such an
impassioned warning. I don't know what can be done to begin correcting
this situation, but your column was a good first step. Reich's appointment
to the Fed would be another.
Thank you for your column and for having the courage to write it.
Lyn Gubser, Ph.D.
Executive Director for Research & Training
Dear Mr. Tehrani:
As a member of the group of high-tech companies you point out as being
responsible for the economic growth of the past decade and a firm believer
in the new economy, I wanted to say "thanks" for summing it up
so well, and tell Robert [Reich] he has my vote.
Account Executive, CEM Division
Dear Mr. Tehrani:
I recently read your article, "Q: How Do You Screw Up A Perfectly
Great Economy? A: Ask Alan Greenspan." I agree with the premise that
Dr. Greenspan is responsible for precipitating the recession. Moreover, it
is worth pointing out, in my opinion, that most journalists do not
understand this and have not looked back even six months. You should be
commended for that. One must also add that Dr. Greenspan's blunder was the
rate at which he increased the interest rates, not the hikes themselves.
Because the last few rate hikes were within a period of two months, they
came too quickly. Dr. Greenspan pushed investor sentiment far beyond where
it needed to be and turned all thoughts toward recession. Investors
understood the impact of monetary flow and the sensitivity of high-tech
companies to their interest rate future cash flows. What he was trying to
do was to find the point at which he could slow down the economy and, in
fact, the market, and he would have gently slowed down the market after
three hikes, but he overshot the mark and was not patient enough to see
the impact of his price hikes. This is why he is reacting relatively
quickly to bring the rate down. Many journalists perceive him as a hero as
they only look back to when the real downward spiral began.
The dynamic nature of capital, i.e., monetary flows for capital
equipment and production investment and monetary supply (the printing of
money or liquidity in the market), is still the primary method with which
to throttle the U.S. economy. I think that Dr. Greenspan knows this and so
do most of the finance/market-savvy individuals who have looked at the new
economy even if through older models. This does not negate your premise
that entrepreneurs and technologists are responsible for the boom we saw.
But, without a strong government infrastructure and a safe and secure loan
and investment environment, the system would collapse and would never have
been able to expand at the rate it has. The two go hand in hand, real
technology development affecting productivity and a sound fiscal and
government environment. You can test this by looking at many countries
that have strong technology developments and scientists, but poor
governments. They just can't boom; rather, they sputter along as
unattractive places for people worldwide to invest in but with reasonable
So, while I agree that Dr. Greenspan is responsible and that he pushed
too hard, I do not believe that a new method to return the economy to
high-growth prosperity is needed -- just several more interest rate drops
and a great deal of patience, which few of us have. Dr. Greenspan has done
a great job for a long period of time, he just lost control and patience
for a while. At 76, he will retire someday soon, I'm sure, but he's going
to fix the mistake that Robert Reich so openly asked him not to commit.
Unfortunately, market sentiment will not recover at the same rate as the
interest can be dropped. It is similar to inflation, which once started is
hard to stop. Fortunately, we are in another deflationary situation and do
not have to deal with inflation or the expectation of it. After all, if we
agree that Dr. Greenspan did make this mistake, then you would have to
agree that over the past nine boom years, he did not make the mistake and
that is fairly amazing.
With kind regards,
To The May 2001 Table Of Contents ]
Business Development Manager
Cisco Systems, Inc.