March 7, 2000

Alan Greenspan: friend or foe?

Alan Greenspan outdid himself in his speech Monday in Boston. He entitled it, "The Revolution in Information Technology," although I call it "An Ode to Technology." Quite frankly, in my opinion, it completely embraced the new era and what wonderful things technology could do for us. I found myself disagreeing with many different points that he made, and agreeing with very few, other than the obvious that technology is wonderful and it's made our lives better.

In my opinion, in his speech Greenspan has confused technology with the bubble, the very same bubble that he has created. He has in essence been reading the stock prices and doesn't realize what he has wrought. In a Rap I wrote in early January, I had a piece about Alan Greenspan inventing the Internet. I noted that since the fall of 1998 he printed copious amounts of money, and then last year when he should have been tightening, he panicked and printed even more money because of Y2K concerns.

This fomented a bubble and money naturally flowed to the stocks with the most imagination. That centered on the Internet and other Internet-oriented ideas, as there was a lot of imagination potential and few facts. Those stocks did the best and the leaders of those companies were deemed to be visionaries, and whatever they proclaimed was therefore to be the future. What Greenspan has basically done is believe the action on the tape and the proclamations by the companies, and has decided that the Internet and technology have truly revolutionized everything in the most unique way.

The flaw in this analysis is that technology has been revolutionizing the world for a very long time, and that does not allow one to pay absolutely stupendous prices to sales ratios, price-to-earnings ratios, etc. The Fed has fomented a bubble, and now the Fed has used the results of that bubble to justify the fact that things are more or less on course.

Al's less-than-perfect predictions... Rather than try to refute point by point all of the claims that he made, I thought it might be more instructive to illuminate for readers the fact that poor Alan Greenspan has been no better and in fact quite a bit worse than many other prognosticators over the past 20-25 years. Let me first say that we all make mistakes, being human, and the future is never quite as clear as the past. But having said that, I think it's important for folks to know that Greenspan has missed many inflection points. This is especially important since so many people have placed their faith - not to mention their net worth and a good deal of borrowed money - on the fact that a) he's going to pick the right interest rate to make everything work just spectacularly and b) he's going to know exactly what to do when we have a problem in the stock market.

So the question really is, should folks let everything ride on his ability to divine the future and to always do the right thing? Does his track record suggest that he is the man to bet on and is he the national treasure that so many congressman have said that he is? I say no. His record is littered with absolutely terrible calls at different inflection points, so I'd like to reprise a few of his past predictions and even some of his revisionist history of his past calls.

My purpose is not to be mean or vindictive. I'm sure that folks could have fun with some of the things that I've said in the past. However, I am not the Fed chairman, nor do I believe that I know the future and know how to control the outcome of things as well as the Fed appears to think it does. Furthermore, folks do not believe that I can, which is not the case with Greenspan.

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