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July 27, 2003
David Warsh, Proprietor


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Narrative Threads

The aftermath of the stock market bubble of the late 1990s continues to work its way through the economy. The California recall election is the most recent example of the enormous harm to the social fabric. The Golden State was one of many states to overshoot its budget during those heady times — in its case by some $38 billion — and the unprecedented commotion there is a direct result.

So how would you guess Federal Reserve Board chairman Alan Greenspan is thinking about his legacy? Some Democratic economists think he’s worried mainly about being remembered for his complicity with the initial round of Bush tax cuts in 2001.

It’s more likely that he’s thinking about laying a foundation for a good long expansion. Hence, most recently, the Fed’s deflating something of a bubble in bond prices. Plenty of intricate steps remain to betake to make the expansion broad and deep — but not much time.

Greenspan served four and a half years of another governor’s unexpired term as chairman before receiving his own full 14-year appointment in 1992. That term expires on Feb. 1, 2006. He’ll be a few weeks short of his 80th birthday then — the author, presumably, of two lengthy expansions spanning twenty years and one destructive bubble in between.

The tax cuts belong to George W. Bush.

* * *

In basing the public case for its war in Iraq on what it described as an escalating threat posed by Saddam Hussein’s pursuit of weapons of mass destruction, the Bush administration was following an old precept — to be persuasive, make your case as narrow as possible.

The real logic of the war always had to do with cleaning up the aftermath of OPEC and switching the economies of the Middle-East to a different developmental path.

Once the Organization of Petroleum Exporting Countries gained control over oil prices in the early 1970s, with the complicity of the Nixon Administration, subsequent US administrations had little choice but to side with one well-financed Middle-East regime against another for twenty years. The Iran-Iraq War was one result. The Iraqi invasion of Kuwait was another. Escalating terrorism was directed at Israel throughout.

Deposing Saddam Hussein’s government should be viewed as the taking-down of a dictator of America’s making — rather like the capture and jailing Manuel Noriega in Panama in 1990. Quite apart from benefits that the Bush Administration hopes will be conferred on civil society in Iraq, the pay-off already has been better Israeli-Palestinian relations. The next task is to jump-start some Palestinian growth — and to that end Palestinian prime minister Mahmoud Abbas was in Washington meeting with President Bush last week.

Uranium ore? Anthrax? Links with al Qaeda? It isn’t trivial. But neither does it matter very much — except as evidence that leading Democratic critics don’t get the point.

* * *

The first of a series of editorials on trade policy have begun appearing in The New York Times under the title “Harvesting Poverty.” So far they are unusually good.

The first editorial, “The Rigged Trade Game” stated the themes with great clarity last Sunday. “By rigging the global trade game against farmers in developing nations, Europe, the United States and Japan are essentially kicking aside the development ladder for some of the world’s most desperate people….

“Hypocrisy compounds the outrage. The United States and Europe have mastered the art of forcing open poor nations’ economies to imported industrial goods and services. But they are slow to reciprocate when it comes to farming, where poorer nations can often manage, in a fair game, to compete. Globalization, it turns out, can be a one-way street.

“The system is sold to the American taxpayer as a way of preserving the iconic family farm, which does face tough times and deserves plenty of empathy, but it in fact helps corporate agribusiness interests the most.”

On Tuesday the subject was fish farming. “The Great Catfish War” related how Tran Vu Long, a Vietnamese catfish farmer, had just sold his 40-ton biennial harvest at a $2,000 loss (an enormous sum in the Mekong delta) — thanks to an measure sponsored last year by then-Senate majority leader Trent Lott (R-Miss.) and quietly tucked away inside an appropriations bill.

Lott’s statute declared that of some 200 world-wide catfish species, only the American variety was entitled to use the name. Farmer Long’s fish would have to be sold in supermarkets and restaurants as “basa” or “tra” — the Vietnamese words for catfish.

The beneficiaries? The Catfish Farmers of America, of course, the trade association of entrepreneurs, large and small, farming the now easily-cultivated fish mainly in the Missi[ppi River delta. You couldn’t necessarily blame the American farmers for trying to protect their crop, The Times wrote, but you certainly could fault the government for abetting them with tariffs — especially when the specter of contamination by Agent Orange was routinely cited as another reason not to shop in Vietnam.

And you couldn’t fail to admire US. Sen. John McCain (R-Ariz.), the former prisoner of war, who with a handful of others had taken up the Vietnamese farmers’ case on the Senate floor — not yet with such success.

* * *

Worry-Free Investing, Zvi Bodie’s book with Michael Clowes, touted here a year ago, is out. The authors, Boston University finance professor and editorial director of Pensions and Investments respectively, make a good case that the inherent riskiness of stocks over long periods of time is somewhat understated.

Inflation-adjusted government bonds are safer bet with age, they say. I offered a précis of their argument in a 90-second spot on the Nightly Business Report last week. A good interview with Bodie appeared in Business Week.

* * *

I erred last week when I wrote that John Kenneth Galbraith was a member of the Gates Commission, which prepared the way for today’s all-volunteer army. Galbraith gave favorable testimony before the committee, but was not a member.

University of Rochester economist Walter Oi helped prepare a study during the few weeks before the inauguration of President Richard Nixon that called the commission into being. He writes:

“I believe that of the fifteen Gates Commission members, only five are still alive: Fred Dent (former Secretary of Commerce and head of the American Textiles Manufacturers Association), Milton Friedman, Alan Greenspan, Stephen Herbits (he was 24 in 1969, later an administrative assistant to Donald Rumsfeld when he was Secretary of Defense in 1976, still later a vice president of Seagram’s and now retired), and Father Theodore Hesbergh (still at Notre Dame).

A conference to commemorate the 30th anniversary of the end of conscription is scheduled to be held at the National Defense University at Fort McNair in Washington D.C. on September 16-17, 2003.

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