George Will

WASHINGTON -- Frequently the fate -- gratifying, yet melancholy -- of consequential public persons is this: They so transform an ominous social landscape that, by the time they leave the public stage, the public no longer remembers the banished dangers, and hence cannot properly value the banisher. So as Alan Greenspan heads to the end, in January, of more than 18 years as head of the Federal Reserve, recall that 30 years ago the intelligentsia worried that democracies, including this one, had become ``ungovernable."

     The worrying was caused by inflation, then thought to be the systemic disease of democracies. The theory was that democratic electorates would reward governments that delivered the pleasure of public spending and would punish those that inflicted the pain of taxation sufficient to pay for that spending. Hence democracies would run chronic deficits. These, it was assumed, both caused inflation and gave government a powerful incentive to tolerate inflation as a means of steadily reducing the real value of its debts -- inflation as slow-motion repudiation.

     Furthermore, deficit spending -- giving the public a dollar's worth of government goods and services and charging the public only, say, 80 cents for them -- produced big government and, by making big government inexpensive, reduced public resistance to making it even bigger. And because of affluent voters' low and steadily lowering pain thresholds, democracies would not tolerate the discomforts associated with wringing inflation out of the economy.

     That supposition was slain by a fact: President Reagan and Paul Volcker, Greenspan's predecessor, put the country through the rigors of wringing inflation out of the economy, and in 1984 Reagan carried 49 states. Between 1945 and 1982 the economy was in recession 22.4 percent of the time. In the 276 months since the recession ended in 1982, it has been in recession 14 months -- just 5.1 percent of the time.

     Because of Americans' low pain threshold, the Reagan-Volcker recession was considered hideous. It was the worst since the Depression, but the economy contracted less than 3 percent. In the years between 1890 and 1945, America's period of hard learning about managing an industrial economy, three times there were contractions of 5 percent, twice contractions of 10 percent and twice contractions of 15 percent.

     Since 1945, and especially since 1982, we have learned the real secret of managing the economy: Do not try to manage it. If you refrain from trying to ``fine tune" business cycles, the cycles will be less frequent and less severe.

George Will

George F. Will is a 1976 Pulitzer Prize winner whose columns are syndicated in more than 400 magazines and newspapers worldwide.
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