Is Alan Greenspan an Economic Guru or an Ogre?

Article excerpt

WASHINGTON _ Depending on who's talking, Federal Reserve Chairman Alan Greenspan is an unparalleled economic guru or a heartless ogre.

To Rep. Maxine Waters, the liberal Democrat from California, he's the latter. She leans into her microphone and tells Greenspan in unambiguous terms that he's "brought great harm to our economy" by raising short-term interest rates, tightening the job market and sticking consumers with higher borrowing costs.

"Well, congresswoman," Greenspan replied, "I trust the purpose of our action was to help, not hinder, the economy. I also trust that in retrospect that will be materially demonstrated."

"How long will it take?" Waters demanded to know.

"Adequate time," Greenspan said softly, drawing a frown from Waters and snickers from the rest of the House Banking Committee in a scene typical of the Fed chief's appearances on Capitol Hill this past winter and spring.

Tuesday night, Greenspan, arguably the world's most powerful non-elected public official, delivered a major address to the Economic Club of New York. His words will be scrutinized for clues as to whether a recession lies ahead and whether Greenspan will urge Fed policymakers to act to counter the downturn by lowering short-term interest rates at their next meeting, July 5 and 6.

Recent evidence _ housing starts, retail sales and industrial production are down, among other signs of softness _ gives ammunition to Waters and other Greenspan critics, mainly liberal Democrats and organized labor. They argue that the inflation-fighting Fed erred in raising short-term interest rates seven times in the 12-month period ended in February.

"Those rate hikes were a mistake" that has forced people to work more hours for less money and has pushed the economy toward recession, declares Rep. Henry Gonzalez of Texas, the ranking Democrat on the House Banking Committee and one of Greenspan's harshest critics.

Greenspan, himself, concedes the economy may be contracting in the current quarter. If there's any growth at all this quarter, it's "very little," he told a congressional panel Tuesday morning.

The stalling economy is prompting a swelling chorus of voices in Congress and on Wall Street _ as well as White House Chief of Staff Leon Panetta _ in support of a reduction in interest rates to prevent a full-blown recession.

"I expect the Fed to lower rates later this year, because Bill Clinton isn't the only guy running for reelection; so is Alan Greenspan," said Fred Bennett, a vice president for Prudential Securities. Greenspan's term as Fed chairman ends next March.

House Democratic leader Richard Gephardt of Missouri wants action promptly. …