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Allen and Stein

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from: Herbert Stein

Football and Finance

Posted Tuesday, Sept. 15, 1998, at 10:30 AM ET

I took in my papers this morning determined not to get bogged down in Clinton-Lewinsky, but it's hard. About three-fourths of the Washington Post's first page is devoted to that, including a lovey-dovey picture of Bill and Hillary, smiling, heads together. And we have no athletic field heroics to uplift us. "Redskins flattened by 49ers" is depressing in Washington and ho-hum in San Francisco.

The real news is the President's speech about the global economy. But even this story cannot escape the taint. We wondered whether the bombing of Afghanistan and the Sudan was an attempt by Clinton to divert us from his problems. Now we have to wonder whether he is playing the part of the world leader in order to divert us. But I will put that thought behind me.

It wasn't a bad speech, as Presidential speeches about economics go. I think it was good to raise the problem(s) to a higher level of attention. But still, I find it confusing, possibly because I have always been mystified by international finance since I took a course in it at the University of Chicago 62 years ago.

One of Clinton's themes is that we are passing from an era in which the world's economic problem was inflation to one in which the problem is inadequate growth. It is a common misconception that inflation is the obverse of inadequate growth. But inflation is a monetary or financial problem and inadequate growth is a real problem, resulting from too little or too wasteful investment of real resources in real physical capital, education, and technology. I am afraid that Clinton's description of the problem leads too easily to the idea that the solution is more creation of money, by the Federal Reserve or by international financial institutions. I doubt that is the case.

The speech gives the impression that there is one global problem. I have the feeling that the problems of Japan, of other Asian countries, of Russia, and of Latin America are all quite different. Japan is a very rich country and can manage its own problems if it has the political will to do so. Russia is not suffering from deflation. Some countries are suffering from the fall of commodity prices, including oil. Some are suffering from domestic corruption.

Clinton quotes with approval Chairman Greenspan's observation that "we cannot forever be an oasis of prosperity." With great respect for Alan Greenspan's opinion, I don't think the metaphor is quite apt. The United States, Canada, and Western Europe, which are getting along quite well, are not an oasis in the world economy; they are the biggest part of it. And the mechanism by which the illnesses of the ailing part of the world economy infect us is unclear. We have before us the fact of the decline in the U.S. stock market, which some attribute to the troubles in Asia and in Russia. But I wonder whether if these foreign troubles had occurred when the Dow Jones was at 7000 rather than at 9000 the stock market would have declined so much. In retrospect it seems that our market was suffering from "irrational exuberance" and only needed some pinprick to burst the bubble.

Well, I don't feel very confident about these opinions, but it beats talking about Monica and Bill.

the breakfast table
entries
12345678910111213141516171819
from: Herbert Stein

Football and Finance

Posted Tuesday, Sept. 15, 1998, at 10:30 AM ET
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Jodie T. Allen is Slate's Washington, D.C., editor. Herbert Stein, a senior fellow at the American Enterprise Institute, was chairman of the Council of Economic Advisers under Presidents Nixon and Ford. He is a member of the board of contributors at the Wall Street Journal.
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