The Smart Money Ignores The Times ‘ Puffy Op-Ed Page

In Hollywood, the screenwriter William Goldman has notoriously remarked, nobody knows anything.

Another venue about which the same might with increasing justice be said is the Op-Ed page of The New York Times , especially when it comes to economic matters.

In a way, this is both understandable and inescapable. The Op-Ed page has evolved (I restrain myself from saying “degenerated”) into a combination of the antechamber of the House of Representatives and the greenroom of the Today show. In the former, that mutant combination of legislative termite and ethical cockroach–the special-interest lobbyist–labors unceasingly to make sure that Lincoln’s great closing injunction in the Gettysburg Address is interpreted as containing the word “certain” before each of the three repetitions of the word “people.” In the latter gather persons whose sole interest in life is keeping their name before the public–one useful means for which is to scatter petals of received or meaningless “wisdom” at the feet of the hoi polloi.

Among the latter on whom this space has already commented is Paul Krugman, the would-be Michael Beschloss of econoblather. The way you tell them apart is the difference in their punditical hair strategies: Mr. Krugman favors a pretty little beard suitable for ever-so-thoughtful stroking while pronouncing toothsome nostrums, while Mr. Beschloss goes for a sleek and shiny ‘do held in place by what looks like WD-40, but may also be snake oil.

Mr. Krugman in recent weeks has issued fulmination upon fulmination about the George Bush tax cut, the principal thrust of which is that it favors the well-to-do. Well, duh–of course it does! By now, a half-century of lobbying has bent the tax code and tax tables so out of shape in terms of equity that any across-the-board reduction has to work that way, and the halls of Capitol Hill are thronged with people highly paid to see that it stays that way. The only cure is reform: the sort of “structural adjustment” we thrust on other countries. Speak to any sampling of Congresspersons, however–at least the ones who want to be reelected–and I dare say you’ll find that the only tax reform any of them favor is something like the repeal of the estate tax, just in time to benefit the huge fortunes formed and enlarged during the tax-shelter heyday that was the 80’s and 90’s.

In recent weeks, we have been treated to a trough’s worth of economic “wisdom” from other boldface names. On April 4 came Steven Rattner, the Times reporter turned plutocrat who is known to devotees of this space as “Wonder Boy.” Putting aside cape and tights for the nonce, and turning his face away from the glittering profile of himself in the current Talk, Mr. Rattner mounted a spirited defense of the chairman of the Federal Reserve, the Great Greenspan. Here’s a sample: “Mr. Greenspan has administered our most powerful economic tool–control of the money supply–admirably …. Now we face a particular economic challenge: the aftermath of a speculative binge. The stampede into foolish ventures can hardly be blamed on Mr. Greenspan, who warned so famously about ‘irrational exuberance.'”

O.K., I dig. But see, there’s a question that keeps bothering me that won’t go away. It’s just this: Where did the money come from that fed the “irrationally exuberant” speculative boom, if it didn’t come from the money supply?

A dollar to the first reader who can give me a satisfactory answer. James Grant is ineligible.

Then, this past Monday, two highly respected, if un- Talk -worthy, names–Nobel Prize winners Franco Modigliani and Robert Solow–weighed in on the Times Op-Ed page under the rubric “America Is Borrowing Trouble.”

The thrust of the two Nobelists’ piece is that the Bush tax cuts will only worsen the already deep hole into which the United States has in theory dug itself through our trade deficit.

It’s a theory of finance most notably elaborated once upon a time by Wilkins Micawber, whose own plight induced him to observe that an excess of expenditure over income by as little as a shilling must inevitably produce misery. Balance must at some point be achieved, or recovered, or else all is lost.

“For a country, just as for a family,” write the two eminences, “there are only two ways of getting the money to spend more than one’s income: borrowing it, and selling assets.” Actually, however, that’s not quite right. One might also add two other ways of acquiring the necessary cash: stealing it, and winning the lottery.

It is this space’s contention that, thanks to circumstances unique in history, the United States has done at least one of those, and possibly both. It has been the sort of conflation of contingencies that New Yorker writer Mark Singer so pithily likened (in his marvelous account of the Penn Square-Continental Illinois collapse) to four automobiles approaching a single collision point from random quadrants–except in our case, the result has not been a horrible thump and carnage, but the oohs and ahhs from the crowd that salute stunt flyers who pull off a death-defying weave.

For a decade now, we have papered the world with greenbacks in our thirst for a better life through imports, and no one has said boo, because what alternative did they have? None, once the pound and yen went down and the sheer magnitude of the global economy sent gold to the sidelines. The euro may someday represent a competitive store of value, but there’s a lot of management work to be done there. The fact is, sheer scale–size–counts for everything in quantitative finance: The big man beats the smaller man every time. We happen to be a big country with a big population, with plenty of space to put the stuff that goes into a high standard of living. How many Japanese have three cars, five TV sets, swimming pools? The dollar rules. It’s the best proof so far of a theory that Bill Clinton seemed determined to test to its limits: If you can get away with something for a long, long time, you may be able to get away with it forever–or at least until payday.

The risk is always that potentially big economies like China’s and India’s, or big commodity sources like OPEC, should decide they want an alternative store of value and start insisting on, say, euros for payment of a significant portion of future transactions. The problem with this is that currencies are like salmon; inevitably they return to their home waters, the rills and streams or vast lakes in which they were “imprinted,” as ichthyologists say. Those waters must be able to accommodate both the full-grown fish and the fingerlings, or else the former devour the latter. Just now–it may be different in 10 years–the euro bloc couldn’t handle an infusion of euros in the size probably needed to threaten the dollar’s absolute hegemony.

And hegemony it is, make no mistake. I like the way Jim Grant’s indispensable Interest Rate Observer puts it in the current (March 30) number: “Capital spending, which drove U.S. growth during the late 1990s, is slowing … the Federal Reserve’s index of domestic factory utilization … stands at its lowest since January 1992. Commodity prices, junk-bond prices and stock prices are falling. Yet the dollar exchange rate is (or has been) rising, even in the face of a decelerating economy, a surging current account deficit, a collapsing speculative bubble and the dawning realization that Alan Greenspan puts on his trousers one leg at a time.” Those guys with their faces on the currency, they the men!

How to deal with this? Our Nobel savants prescribe “a gradual reduction of total expenditure relative to income–that is, a rise in national saving–and an increase in net exports.” My question is, how do you get from where we are to where they want us to be?

Rectify the balance of payments with more Adam Sandler movies? Implement a national-savings initiative whose centerpiece might be a tax increase that would be deposited in a federal savings bank insulated by law from the depredations of legislators and the subtle brilliance of Federal Reserve chairmen? Do we move production back here from overseas? At what wage rates, pray tell? And does a $3-a-day worker have as great a possibility–let alone propensity–to spend as a $20-an-hour laborer? The spiel–signing up the mullets–is the easy part; delivering the goods is what’s hard. If you don’t believe me, just ask the good folks at Pacific Gas & Electric.

I think there are imaginative answers out there, but if recent history shows anything, it is that nothing in America is less well rewarded than an idea, even a supergood one, whose moment has not yet come, or has been so deemed by the official gatekeepers who edit Op-Ed pages and book talk shows. And most of all an idea whose implementation threatens to mitigate or reduce someone’s short-term profit–or their place in the talk-show pecking order.

Which means you won’t find such ideas expressed on the Op-Ed page or heard on Charlie Rose –and as long as that’s the case, probably not to the benefit of this great nation, either.