Federal Reserve Board Chairman Alan Greenspan has a well-deserved reputation for inscrutability. I remember him once telling a congressional committee that if they thought they understood what he just said, then they didn't understand what he said. In other words, his comments were intentionally ambiguous -- not intended to be understood by anyone.
There was one occasion, however, when Greenspan was too well understood. In late 1974, he had just taken office as chairman of the Council of Economic Advisers under President Gerald Ford. For many years previously, Greenspan had been a well-respected Wall Street economist, and this was his initial term of government service.
One of Greenspan's first jobs as CEA chairman was to address a Sept. 19 conference on inflation. Then, as now, the economy was mired in recession -- indeed, the steepest downturn of the postwar era. Theoretically, slow growth should have caused inflation to disappear. According to the dominant economic theory of the time, inflation and recession could not coexist simultaneously.
The purpose of the summit was to discuss this apparent contradiction and develop new government policies to respond to it. During a panel chaired by Secretary of Health, Education and Welfare Caspar Weinberger, Greenspan committed the biggest gaffe of his career.
Labor leader Jerry Wurf complained that Ford's policies favored the rich over the poor. Greenspan replied that, actually, the rich suffered more from stagflation than did the poor. "If you really wanted to examine who, percentage-wise, is hurt the most in their incomes, it is Wall Street brokers," he argued. "I mean, their incomes have gone down the most. So, if you want to get statistical, let's look at what the facts are."
The press, Congress and just about the entire Washington establishment came down on Greenspan like a ton of bricks, and he was quickly forced to recant. "Obviously, the poor are suffering more," he abjured. With support from Ford and a swift apology, Greenspan survived the flap. Ever afterward, he has been much more circumspect in his public, and even private, comments.
What was never considered, however, was the actual substance of Greenspan's statement. The fact is that he was exactly correct. As Slate.com editor Michael Kinsley once noted, major gaffes only occur in Washington when someone speaks an impolitic truth. This is a classic case.
I recall this history because it is relevant to current circumstances. Once again, we are in the midst of an economic recession. And, as in 1974, the question of who is suffering most has important political implications. Senate Majority Leader Tom Daschle, D-S.D., for example, has blocked passage of an economic stimulus package for months just to stop corporations and well-to-do individuals from getting even the tiniest bit of tax relief.
Yet, as Alan Greenspan correctly observed in 1974, it is the wealthy who have actually lost most in monetary terms from the recession. That is simply because they have more to lose when the stock market collapses, because they own most of the stock. According to a Census Bureau study released earlier this year, those in the top 20 percent (quintile) of households, ranked by income, own 58.6 percent of all stock and mutual funds in terms of value.
This means that those in the top quintile have lost the vast bulk of the money resulting from the steep fall in the stock market since last year. The combined value of all stocks on the New York Stock Exchange and the NASDAQ market peaked in August 2000 at $18.9 trillion. As of the end of October 2001, this fell to $13.4 trillion, a decline of $5.5 trillion.
Using the Census Bureau data, this suggests that those in the top quintile have suffered a loss in wealth of more than $3 trillion in just over a year. Of course, I don't mean to imply that we should feel too terribly sorry for them. After all, they still own the bulk of the stock. But it would be nice if the class warfare-crowd would at least acknowledge that the poor aren't the only ones who are suffering.
The Left always glorifies equality of income and wealth as an enormous benefit to society. Over the past year, they have gotten their wish: Wealth is far more equally distributed now than before the stock market crash.
But who has gained? Is there a single poor person in America who is better off because people like Warren Buffett and Bill Gates are billions of dollars poorer? I think not.