Greenspan Counsels Patience

Alan Greenspan stepped out from behind the Fed mahogany again Wednesday to perform in the part-time job he’s been clocking in at with some regularity since Sept. 11 — that of reassuring, kindly old broker to the world, on the phone with some very nervous clients.

Has the terrorists’ attack on America and American capitalism been successful? No. "Despite the tragic events of September 11, the foundations of our free society remain sound, and I am confident that we will recover and prosper as we have in the past," Greenspan said in prepared testimony before members of the House-Senate Joint Economic Committee.

Is consumer confidence sunk? No. "Judging from history, human beings have demonstrated a remarkable capacity to adapt to extraordinarily adverse circumstances... I expect the same adaptability to become evident in the present situation." Are the markets? Again, no. "These adjustments in prices and in the associated allocation of resources, when complete, represent one-time level adjustments, without necessary implications for our longer-term growth prospects."

And productivity? What of productivity? By the time Greenspan finished his canned statement, the violins were playing "America the Beautiful." "For the longer term, prospects for ongoing rapid technological advance and associated faster productivity growth are scarcely diminished. Those prospects, born of the ingenuity of our people and the strength of our system, fortify a promising future for our free nation."

Buy-and-hold all the way. According to Greenspan, sustainable economic growth — and its mother, the productivity growth engendered by the infotech economy — isn’t likely to revisit those go-go glory days of 1995-2000 any time soon, if ever. But we’re still looking at a better economic world going forward than the Cold War ones. Just as soon as all this blows over.

Yet at mid-morning, as the Fed chairman settled into his usual bob-and-weave under oft-vapid questioning from senators and congressmen, that stability was falling away under his feet. Stock markets had opened with the bulls Wednesday after Intel and IBM met lowered Wall Street expectations and signaled that tech life was indeed going on. Big Blue didn’t even change its fourth-quarter outlook.

Then suddenly House Speaker Dennis Hastert was announcing the House of Representatives would be shut down through Tuesday while bio-detectives swept the offices. Tom Daschle’s list of anthrax scares was into the dozens, and George Pataki was starting one of his own. And stocks started slipping, and slipping, until the Dow’s 100-point opening-bell rally was 20, 30, 100 points into the red. Not exactly crashing, but not threatening to turn around any time soon.

But it will, right? Considering that the Big Bug now seems to be swirling around New York with unsettling regularity — not to mention getting mailed there from New Jersey, where a good portion of the displaced financial community fled after the planes hit — the big-money investors took it pretty well. All this meant was that now no one would open the mail of staffer-drenched folks like Tom Brokaw and Pataki — financial types do it all by computer anyway — and it’s not as if the Post Office was ever a good investment.

But whoever is dusting the mail is giving us a glimpse of the ugly scenario that neither Greenspan, nor any one else with a finger on any U.S. economic button is willing to entertain publicly — that diffuse, elusive threats like sporadic anthrax mailings, even if all of Daschle’s staffers are treated and cured, have the potential to turn the one-time economic shocks of Sept. 11 into a dampening, depressing drumbeat of diminished expectations.

As many a CNBC pundit remarked about Greenspan’s far-eyed optimism, he certainly wasn’t going to show up in front of Congress at a time like this without a smile. But his duties as economic-reassurer-in-chief aside, if Greenspan truly does have his long-term bets down on American prosperity, and history does indicate that’s pretty smart money.

But you know that old line about how South America is the continent of the future — and always will be? Economists have been learning all year that the near-term recovery they’ve been expecting all year has had a stubborn way of being constantly rescheduled for next quarter, next year, 2003. And Greenspan was careful to point out that the kind of security and terrorism-response-readiness spending on which the government and private sector alike are currently fixated is definitely not the kind of productivity-enhancing investments by which new booms are born.

"Before the recovery process gets under way, stability will need to be restored to the American economy and to others around the world," Greenspan said. That "stability" is the diminishment of uncertainty, of danger, of fear, and it may have to be felt by consumer, business, and investor alike before we can move on and start dreaming again about how rich we’ll be next year. The working assumption of the Greenspans of this post-attack world is that the attack part, at least, is behind us. One-time shock, temporary trauma.

The working assumption of Osama bin Laden (or his sympathizers and/or copycats) is that the way to beat an economy that won’t make a move without "stability" is to keep it looking over its shoulder — and worrying about its mail — as long as possible, and keep pushing back that season of calm optimism another month, another quarter, another year.