When the Federal Reserve Bank raised interest rates by a quarter of appoint on February 2, The Wall Street Journal said the Fed was trying to "steer the highflying economy to a soft landing.
But a "soft landing" for whom?
By increasing interest rates now and threatening to increase them again in the spring, Alan Greenspan, chairman of the Fed, has made clear that he wants the economy to slow down. Which means he wants unemployment to go up.
That's what happens when interest rates rise. It costs more for consumers to buy houses and cars, so the demand for houses and cars (and other goods and services) goes down. When the demand goes down, companies lay off employees.
For the people who get laid off, there's nothing cushy about a "soft landing."
Greenspan and the Fed are worried about inflation, even though it stood at only 2.7 percent last year. They are more than willing to risk throwing hundreds of thousands of people out of work than to let inflation--and wages--rise by 4 or 5 percent.
Why is the Fed, the nation's central bank, biased toward fighting inflation?
Because it is a bankers' board, not a workers' board, or a citizens' board.
Bankers don't like inflation because it cuts into the profits they make on their loans.
Banks want to protect the value of their loans and the other financial instruments they have sold.
For instance, if you're an executive at a bank, and you've lent out 30-year home loans to thousands of customers with fixed interest rates of 8 percent, you're doing fine when inflation is considerably below that. But if inflation rises close to that 8 percent, you're not making nearly as much money.
So, for the lenders, even moderate inflation is bad. But, for the borrowers, it can be a blessing.
The dirty little secret about U.S. economic policy is how undemocratic it is. Congress, the people's chamber, does not set monetary policy. Even the President of the United States cannot set monetary policy.
That huge decision is in the hands of the Fed, which is composed of twelve regional branches. And those banks are controlled by the commercial banks in each region. While the President appoints the Fed's board of governors, the commercial banks have an enormous influence on policy decisions.
There is no representative of labor on the Fed, no representative of consumers, no representative of borrowers.
For the last few years, Greenspan has modified his anti-inflation mania, worried that raising interest rates might destabilize the world economy after the crisis in Asia. But now that the crisis has subsided, Greenspan is back on his crusade.
And Clinton's recent reappointment of Greenspan may come back to haunt heir apparent Al Gore.
If the "soft landing" turns into a wreck for workers and consumers alike, Gore--not Clinton--will pay the price.
Copyright © 2000 by The Progressive