Jewish World Review July 24, 2002 / 15 Menachem-Av, 5762

Jack Kemp

Jack Kemp
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

'Infectious greed' and other miasmatic diseases | American equity markets have lost $7 trillion in value, approximately 40 percent, since they peaked in late March 2000. The Washington establishment has decided to blame it on a "speculative bubble" caused by foolish investors and to a "loss of confidence" caused by greedy corporate "wrongdoers" who were out to systematically plunder their companies.

In a July 8 press conference, the president said corporate corruption might cause Americans to "lose confidence in the free enterprise system." The next day, in a speech to Wall Street, he said, "At this moment, America's greatest economic need is higher ethical standards" -- which is always true.

The president's straight talk was unfortunately misinterpreted by the rest of the establishment as a signal to make the "evil" businessman and woman the fall guy. Congress thinks the people have lost confidence in the economy because government isn't tough enough on business, and it is in a legislative frenzy to mete out punishment. Fed Chairman Alan Greenspan has joined the witch hunt against American business by preaching about the wages of greed and avarice.

Greenspan offers a misguided "bubble" diagnosis along these lines: "Irrational exuberance" among investors "engendered an outsized increase in opportunities for avarice" and created an epidemic of "infectious greed" that overwhelmed the "guardians" of the economy. Firms vastly overproduced goods and services, especially in the technology industry, which led to "excess supply" and "excess capacity." Too many people became employed, and the economy was running away at an unsustainable pace with too many people getting wealthy.

This hyper economic activity was stoked, supposedly, by people's insatiable greed, their lack of scruples and an incurable myopia. Business executives were cutting corners and cooking the books to loot their businesses and fleece their stockholders, who had thrown due diligence to the wind. The economy inflated because people invested too much money in too many get-rich-quick schemes and then ran amok because government didn't regulate and tax it enough.

This is the same kind of quackery doctors practiced during the Civil War when they had no comprehension of germs or antiseptic technique. Disease and infection were blamed on toxic "miasma" or "effluvia" -- as meaningless in explaining what causes disease and infection as "financial bubbles" and "infectious greed" are in explaining what causes economies and stock markets to rise and fall. Civil War surgeons killed their patients using unsterilized instruments; today's policymakers poison the economy with high tax rates and crushing regulations.

The economy boomed in the 1990s because the Fed maintained fairly stable monetary policy early in the decade, there were technological advancements and resulting productivity gains of historic proportions mid-decade, and in 1997-98 Congress cut the capital gains tax and made other improvements in how the returns to capital are taxed. The economy went into a ditch when the Fed pinched off the flow of liquidity and appreciated the value of the dollar by some 40 percent, Washington became obsessed with budget surpluses and refused to cut tax rates, and government went on a regulatory jihad.

The '90s boom economy wasn't a bubble that popped in an act of divine retribution for hubris, greed and immorality. Business plans and economic projections that made sense under a reasonable policy regime suddenly became unrealistic and unworkable when government jerked the rug out from under them with ridiculous anti-trust actions, anti-competitive price controls and deflationary monetary policy that sucked the oxygen out of the economy.

"Excess supply" and "over capacity" came about only after bad government policy crunched the economy.

George Gilder said it best in a recent Wall Street Journal opinion column: "Accounting tricks at WorldCom, Global Crossing or Qwest did not cause these companies to fail. Accounting tricks were a symptom of failure -- the result of a perfect storm of government policy mistakes that led to the deterioration of an industry at an unprecedented pace. No number of accounting reforms, cathartic judicial proceedings or ethical reawakenings will bring back technology and economic growth."

On the day of the president's press conference, the Dow Jones industrial average opened at 9,375. By last Friday, the Dow had fallen by more than 1,400 points, almost 15 percent. Clearly the real "loss of confidence" affecting the economy is the loss of confidence in government.

Rather than collapsing, markets would be soaring if the establishment were considering serious economic reforms, such as reforming the tax code, slashing corporate income tax rates and capital gains tax rates, and allowing companies to deduct dividends paid to stockholders. We could also get serious about deregulating the remaining two huge overregulated bottlenecks in the American economy -- telecommunications and electric utilities.

Until Washington gets serous about such economic reforms, this economy will remain in serious trouble.

Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.

Jack Kemp is co-director of Empower America and chairman of Foundation for the Defense of Democracies. Comment by clicking here.


07/12/02: Solving the "Arab Problem"
07/02/02: July 4, 2002
06/26/02: Unsigning an unratified treaty
06/10/02: Establishing 'givens' in Middle East geo-politics
06/10/02: New role models for Africa
05/02/02: What wasn't heard out of Crawford
04/25/02: In search of Arab dignity
04/16/02: Taxes and history lessons
04/09/02: Arabs must take a stand against terrorism
04/02/02: Nuevo dependencia and world government
03/26/02: Bureaucratic buffoonery at the INS
03/19/02: California's newest citizen politician
03/06/02: Peaceful relations or public relations?
02/27/02: American trade policy at war with itself
02/20/02: Three-conjecture strategy on global warming
02/14/02: Nurturing democratic capitalism in Afghanistan
02/06/02: Gephardt embraces tax cuts and tax simplification
01/30/02: Just the facts
01/22/02: 'Been down so long it looks like up to me'
01/15/02: Confronting terror wherever it occurs
01/09/02: Daschle's war on Bush
01/03/02: Prosperity policies, not partisan politics
12/27/01: Governments create calamity, markets get the blame
12/18/01: 'Tis the season for Daschle to compromise
12/12/01: Hard choices made simple
12/05/01: Straight talk on Iraq
11/28/01: Not all tax cuts are created equal
11/20/01: Words have consequences
11/15/01: Deflationary recession
11/07/01: Consider Mideast reality in the war on terrorism
10/30/01: No 'stimulus' required
10/23/01: Good out of evil
10/16/01: Watching Iraq
10/12/01: The putrid stench of evil
10/04/01: Trade, terror and truth
10/01/01: Drive this scourge from the face of the Earth
09/25/01: Bush emerges as leader for his time
09/06/01: Middle East Madness has a chief instigator
08/30/01: It's about economic growth, stupid!
08/22/01: Phlebotomizers at the IMF
08/17/01: The Greenspan Recession
08/08/01: From Kyoto to Bonn, no science equals nonsense
07/25/01: Fiddling while the world economy freezes
07/19/01: Schundler should be New Jersey's next governor
07/12/01: Second wind for the global economy
07/06/01: An interest-rate target with no bull's-eye
06/28/01: Tax harmonization --- American-style
06/21/01: Warming diplomacy --- at what price?
06/13/01: A party that stands for nothing deserves to lose
06/07/01: No peace in the Middle East
05/30/01: Jeffords' palace coup
05/24/01: A supply-side energy plan
05/16/01: Getting Lincoln right
05/10/01: A good reason to borrow
05/01/01: Supreme Court makes racial profiling the law of the land
04/26/01: Campaign finance reform: silencing the lambs
04/17/01: Right wanted might in China case
04/12/01: How minority entrepreneurs can save the tax cut
04/04/01: Whose privacy is it?
03/29/01: A letter from Seoul
03/20/01: Ignore the double talk and double the tax cuts
03/13/01: Don't give up the bully pulpit on Social Security, Mr. President
03/06/01: Another attack on the economy
02/28/01: It's time to end deflation
02/21/01: Building blocks of humanity
02/15/01: Trumping the propaganda
02/06/01: The Gipper at 90
01/30/01: Kicking off a season of economic growth
01/24/01: The Bush tax agenda
01/17/01: Debating the Clinton legacy
01/10/01: No need for another Social Security commission
01/03/01: Truly a Golden Age, if we can keep it
12/27/00: The Grinch who turned off the holiday lights
12/20/00: Forging ahead
12/13/00: A new tax system for the 21st Century
12/07/00: Global government in retreat
11/30/00: An open letter to Fed Chairman Alan Greenspan
11/21/00: Don't forget the guy in charge
11/15/00: Civic virtue, civic vice
11/08/00: Memo to the president-elect
10/31/00: Scare tactics won't work
10/24/00: Prosperity in the balance
10/11/00: Al Gore's economics of fear
10/03/00: Al Gore IS debatable
09/27/00: Government should protect our online privacy
09/13/00: The most important issue
09/05/00: Defeating the Gore blitz
08/29/00: Workers of the world, rejoice
08/22/00: Just the facts, Mr. President
08/08/00: Reclaiming Lincoln's legacy
06/23/00: A renaissance for urban America?
06/16/00: Capital access can bridge 'digital divide'
06/08/00: Some friendly advice for Rick Lazio
05/26/00: Is the economy being saved or destroyed?
05/22/00: Immigration and the promise that is America
05/12/00: Stock market roulette or snobbery?
05/04/00: Is Rule of Law whatever we say it is?
05/01/00: Myths happen

© 2002, Copley News Service