Great Article..http://www.larrykudlow.com/commentary/022900.htm
Nothing Left To Do
By Lawrence Kudlow
Imagine how disconsolate Alan Greenspan must be. There he is, at his desk, in front
of his computer terminal, just hoping that the major U.S. stock market indexes would
continue along a nice, gradual, smooth, almost unnoticeable downward glidepath
over, say, the next nine months.
You know, a sort of non-bear market bear market. Just the thing that would vindicate
the Fed chairman's deepest desires for a slowdown in asset price wealth creation that
would reimpose an economic speed limit. Then the central bank could declare
victory. Not a real bear market, mind you. Certainly not a recessionary economy. But
just enough to show how important the Fed really is.
But the stock markets just won't seem to cooperate. Oh, I know, after the chairman's over-the-edge
anti-productivity testimony before Congress scared the living daylights out of the old blue chip averages, it
looked like the Fed was really at the top of its game. Hey, these guys really have power. This is front page
stuff. Just look how the markets crumbled.
Uh, oh, now it almost looks like the markets are coming back. Only a few days after Greenspan's most recent
fifteen minutes of fame. And the Nasdaq never really slumped. In fact, it has broken another record. Very
disrespectful. Almost bordering on anti-authoritarian.
What nerve. If it's not one thing, it's another. First biotech, then semi-conductor memory chips, then
networkers, then telecoms. Who knows, one of these days we'll read that the shares of some old steelmaker or
farm tractor company are rallying. After all, the high-techs filter through the old economy. Spillovers and
applications galore. Pardon the phrase, but there's trickle down going on here.
The Internet, you see, is more important than the Fed. Just this morning America Online and Time Warner
announced an "open access" policy for their broadband cable system. Though a few wrinkles need to be
ironed out, the basic story is that consumers will be offered a choice of multiple Internet-service providers
without paying for any one system.
Open access for broadband cable systems means much more powerful information transmission at much
faster speeds. Right now, it takes sooooo long to hook up my AOL system running through the telephone
wire. In the future, when open access becomes universal, I'll be able to surf the net fast. Really fast. Big time
saver. Much more efficient and productive.
The whole Internet economy will be put on a new fast-forward path to even stronger growth, with even more
rapid productivity, at even lower prices. Unlimited broadband cable access is huge. I can see Mr.
Greenspan bending over his desk in pain. Oh, my goodness, more productivity?
Only a week ago Intel announced a new super-fast 1.5 gigahertz chip that will be twice as fast as the old
800 megahertz Pentium III. More fast-forward. More power. More productivity. More growth.
A few days ago the Big Three auto companies announced a giant on-line auction site to buy over a quarter
of a trillion dollars worth of supplier parts and other goods. Executives predicted that they could cut
purchasing costs up to 10%, and might reduce a typical automobile by $1,000. According to one news
report, "This could slow inflation in car prices by offsetting part of the cost of new features like compact disc
changers."
Lower prices? Cost offsets? Right out of Joseph Schumpeter's playbook. Rapid technological advance
generates more growth, with greater productivity, at lower prices.
Government statistics don't chart high-tech prices very well. But the Bureau of Labor Statistics does publish
their best effort estimates of new economy prices. For example, over the past seven years semi-conductor
chip prices have dropped 34%. Personal computer prices over the past two years have fallen 54%. Software
prices since late 1997 have dropped 12%.
I know, I know, oil prices havegone
way up. But this doesn'treally
count, at least not in a recurring
sense. Inflation is caused by bad
money, not by temporary price
changes induced by old economy
commodity cartels. Anyway, the
Clinton administration is finally
getting around to rapping OPEC's
knuckles. Oil will drop at least $10
by yearend.
All this leaves Greenspan and Co.
in a tough position. Information
tech innovations are promoting
growth and reducing inflation.
These trends are spreading
through every nook and cranny of
the economy. There's really
nothing to fight against.
Even bond rates are falling,
despite fed funds rate increases.
Nowadays the Fed can't even inflict any serious punishment on the bond market. And since lower bond rates
are healthy for stocks, giving today's earnings even more future power, the Fed may not even be able to
induce a decent bear market decline.
Has the Internet taken over? It sure looks like it. Pretty soon electronic money payments and direct stock and
bond issuance will even replace the central bank's money creation role.
What's a central banker to do? There's not much they can do, except surrender to the Internet economy.
Just keep the dollar's value steady. Then go quietly off into the night. Or maybe join a new dot com, and
create some real wealth for themselves. |
