Lee, IMO, Greenspan is only framing part of the argument...of course, stock equity gains ("wealth effect") is having an effect on consumer purchasing...(and in turn creating imbalances)...but these imbalances are also a function of our country's low savings rate (vs. many other countries)...we simply consume too much (almost irregardless of income level or the stock market).....not all of our "over consumption" is a function of higher stock prices....some of higher consumption is a function of people feeling extremely secure about having/keeping a job...in other words, instead of saving for a "rainy day"...consumers spend and spend..(I speaking in aggregate here, of course)..because consumers think (believe).....if I lose my current job...there is another one around the corner....this behavior.....IMO....is a function of the many years of tight labor market that we've had....which is, in essence, a good thing....because of 4% unemployment, we have allowed many who were, in no way, part of the functioning economy, and even functioning society....to be part of a functioning economy and society.......I don't know if you have gone to McDonalds or Wal-Mart lately....but it is clear that there are a lot of "newbie" hires.....again, this is a great thing....these folks deserve to be part of the "American dream" too.........this has had profound social consequences (much lower crime in most cities, many more people upbeat about their situation, lowest African-American, Latino unemployment in years...)...So, as I see it, we should support a low unemployment rates (and even if it puts potential pressure that has on wages) because of these extremely positive social benefits......the Phillips curve, especially when it placed limits on unemployment to the 5% level...was a cruel instrument, IMO..........however, if we are going to accept this low unemployment/potential for higher wage(s) environment (which I think we, as a nation, should)......the trade off is that we need to get consumers to save more (and spend less)....that way, we can maintain the economic nirvana of low inflation, low interest rates, low unemployment, and rising equity prices....
Without increased savings (and, I would add, an increase in margin requirements)....we hamper our economy with excess speculation and a higher-than-necessary borrowing rate......at that pt. (and now)..the Fed only has one tool (remaining) in its holster- raise interest rates....
Raising interest rates....is not (in a large way) going to effect those consumers that (A) Feel secure about their jobs (B) Do not save enough....as long as unemployment remains where it is (which is a good thing)....these folks are going to keep on buying (unless they become "educated" to saving...)
I think you would agree that raising interest rates effects some economic segments unfavorably (even if those particular segments are not overheating)...
BTW- The tagline (What Bugs Me..") was a bit misleading....A greater effort than Greenspan using the "bully pulpit" on raising savings is needed...just, I never hear Greenspan talk about it...or, at least, not to the extent than high stock prices.. |
