Imagine that you set out to drive from Manhattan to Southampton, a distance of roughly 100 miles, and that you fill up your Land Rover’s gas tank at $1.90 a gallon before leaving.
Next, imagine that when you pull off Route 27 by the Lobster Inn-having suffered the hour it takes to negotiate the last mile-and-a-half jam-up of vans and trucks and budget models driven by “working class” types who, having been priced out of the possibility of living near where they work, are forced to commute from “up island”-you and your fellow sufferers find that a toll plaza has been erected across the highway and that you are being surcharged at the rate of one-half cent per gallon, not only for the gas remaining in your tank but for any fuel consumed on the way out.
This is what I call a retroactive price increase, and it is a true-and an inflationary-effect of Mr. Greenspan’s “inflation-fighting” interest-rate hikes. You’ve heard it here before, but let’s hear it again: In a credit-driven economy, across-the-board interest-rate hikes, applicable not only to new credit but to all outstanding loan balances, represent price increases that are going to be passed along to someone in order to protect margins or living standards.
The leveraged corporation dependent on the good opinion of Wall Street with respect to its bottom line has no other way to protect that bottom line, and the multiple thereof that underpins its stock price and the value of its options, apart from a) increasing prices or b) cutting costs (i.e., firing people or squeezing suppliers). If those suppliers include purveyors of credit, a nice inflationary ripple effect is created, as other borrowers’ interest rates are marked up to cover rising delinquency and default rates-and all in the name of “fighting inflation.” Talk about topsy-turvy!
Similarly, the landscaper wending his dreary way from Selden or Coram to East Hampton will either a) pass on his increased cost of doing business (his vehicle-financing and fuel costs) to his employer, which might cost him his job, or else might produce a countervailing demand by aforesaid employer that he work more hours (which I suppose Mr. Greenspan would hail as “enhancing productivity”); or b) said laborer can also choose to forego or cut down on another of his few remaining pleasures, thus adding his mite of stringency to the desired cutback in aggregate demand for bread and circuses. To people who drive Land Rovers, it of course makes no difference, since for such people the truth is all in the spread.
In either case, however, according to Mr. Greenspan’s Humpty Dumpty definition of inflation (“It’s what I say it is; no more, no less”) only b.) matters, since reduced demand (future economic activity) is anti-inflationary. In his definition, a.) is inconvenient and is therefore ignored, as long as one can pretend it does not exist. It is effaced from the tablets that are so proudly and pompously flaunted by the Moses of the Fed. But in the real world, if not in theory or in testimony before Congress, a.) won’t go away: It represents a surtax and grounds for a price increase on economic activity already in place. It is why Mr. Greenspan’s anti-inflation tactics breed inflation as much as reduce it. I suppose I should add that interest-rate markups tend to increase the wealth of usurers while keeping workers and entrepreneurs in debt, since more now goes for interest and less for principal.
The inflation paradox is my bête noire . Two writers for whom I have tremendous admiration, James Grant and John Crudele, are convinced, on the strength of overwhelming evidence both anecdotal and analytical, that the government’s economic statistics-especially those having to do with productivity and cost of living, respectively-are a tissue of lies. Meanwhile, my colleague Chris Byron spends his time eviscerating prospectuses that bear the superscriptions of lofty Wall Street houses and are essentially pure fiction.
What’s troublesome is that nothing any of us writes seems to have any effect. It’s possible that’s because we’re just flat wrong in our perceptions. More likely, it’s because our audiences are drawn from the sectors of society who don’t have to give such matters much thought, at least not until the mob is upon them with pikestaffs. It’s a class typified by an old-timer I encountered early in my own Wall Street life: When I asked him about a hot new issue, he advised me, “That’s the sort of crap I only put in discretionary accounts. Personally, I wouldn’t touch it with a 10-foot pole!”
Most troubling of all is the sense that the Clinton mantra-“If everyone’s lying, no one is”-has pervaded every aspect of our life as a nation. Our tolerance for untruth of every kind and degree, from pastel hypocrisy to garish outright fabrication, is really pretty amazing. It’s a tolerance that the peddlers of untruth have found to be pure gold.
I’m not merely talking about the kind of mobbed-up bucket-shop swindlers the Feds arrested the other day. Or the propaganda merchants in the Labor Department who put out “facts” (about gasoline price inflation, for example) that-as Mr. Crudele noted in a recent column in the New York Post -simply fly in the face of a reality observable to anyone who drives a car. Big companies are now masters of the game. Here are a couple of recent examples.
AT&T has developed a cute trick for users (like myself) of its Worldnet e-communication system. When the system goes down at AT&T’s end, a message appears at my end suggesting that the problem is located with me, in my computer or connection. The other day I couldn’t get on, and the error message told me to check my PC, my modem and my connection; but when I finally called the 1-800 “service number,” it turned out that AT&T had changed my access number-without notifying me. That is nothing less than a fraud. It should be punishable by civil penalty, and that prize phony Michael Armstrong, who “runs” AT&T, should be given 100 years of community service in East New York, where I hate to think what the telephony must be like.
Then there’s Bell Atlantic. We have a satellite TV system in my building, and the other night, when I tuned in to see how the day had gone at Pebble Beach, I got zilch. This was about 10 p.m. I dialed the “24 Hour Service Number” and got an answering machine telling me that I should call back during office hours: 8 a.m. to 2 a.m. Does an answering machine constitute “24 Hour Service?” You tell me. I dialed again, and this time a machine voice informed me that “due to overwhelming interest in our products, we cannot take your call at this time.” The next morning, promptly at 8 a.m., I dialed the service number. It was noon before I heard a human voice, with a solution that could easily have been posted on the Web site. By then, I was ready to kill someone. Not the nice technician, but the overpaid-S.O.B. C.E.O. of Bell Atlantic, who was probably off at an executive retreat.
In a self-proclaimed high-tech era, stuff like e-mail or TV is supposed to work. I am not here simply to pay my money to the marketing people and then suffer in silence, fended off by machine voices or left hanging while a jackass like Michael Armstrong poses for the photographers while his publicists spin the facts dizzy. In a democratic society, equity-good faith-is supposed to be a reality. Keeping ’em “sullen but not mutinous,” as the late Herman Hickman put it, is supposed to be a joke, not an actual theory of governance.
I sense a fury building out there-the aftermath of the Puerto Rican Day Parade may be evidence-that scares the hell out of me. Ours are fraudulent times, and more and more people are beginning to see that. Greenspan is a fraud, another wizard with a loudspeaker. I feel sorry for him, because a Fed chairman is supposed to do something. But these rate manipulations are all he has left, the only trick left in his sorry bag. It’s been that way ever since OPEC took control of the money supply out of the Fed’s and the Treasury’s hands 20 to 25 years ago; since then, Wall Street has made sure things stay that way, with the Fed kept on tap to print the paper with which to wipe up the mess whenever the Street really fouls its own nest.
Of course, it’s not just Greenspan. Despite their defenders, who crave the peculiar form of esteem derived from appearing on talk shows, there seems no way to gainsay that it is the Clintons and their ilk (including Tony Blair in the U.K.) who have perpetrated public fraud on a scale and with an indifference to right and wrong that, with considerable help from a bull market, has simply battered people into tolerating what they abhor. They have set the model for marketeers everywhere. But moral, commercial and ethical anesthesia is like any other ether. In time, it wears off, and when it does, the patient may come out swinging-and then God help the doctors who put him under!