Magazine article The American Prospect

Boasting on Demand: 1994

Magazine article The American Prospect

Boasting on Demand: 1994

Article excerpt

"Are we really on a cliff by the sea, poised perilously above the waves and the rocks? Or are we in fact down by the beach, on a gentle slope of soft and agreeable sand?"

"Can't We Go Faster?"

TAP, September 1997

I CLAIM THE BEST RECORD OF ANY economist to survive the 1990s, now that William Vickrey and Robert Eisner have passed on. In The American Prospect in 1994 [see "The Joys of Recession," Winter], and again in 1997 [see "Can't We Go Faster?"], I urged my fellow economists to shed their fears of full unemployment and low interest rates. Few did. But then Alan Greenspan began to behave as if he had, on the sly, been reading the Prospect. Having worried the world with a preemptive strike against inflation, Greenspan stopped worrying. He froze the interest rate, allowed strong growth, and drove the economy to full-employment prosperity for the first time in almost 30 years.

Nothing bad happened. Inflation did not rise. Instead, as Eisner had foretold, productivity growth rose, permitting higher output and higher wages without rising prices. As tax revenues surged, the federal budget deficit disappeared, momentarily, by the decade's end.

The millennium ended gloriously; economists scrambled to catch up. Why hadn't inflation run away? Alongside Greenspan, most discovered that marvels of technological progress were being created by software companies and teenage billionaires who were transforming business culture. Robert Rubin, Larry Summers, and others predicted--a bit too boldly--that productivity miracles would continue forever. Official forecasts projected budget surpluses until the federal debt disappeared in 2013.

By then my mantra was "No new paradigms." A bubble was clearly visible to all who remembered what one looked like. In 1998, I supported former Representative Henry Reuss' call for higher margin requirements, which could have cooled the dot-com madness without raising interest rates. …

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