In his July testimony to Congress on monetary policy, Alan Greenspan was cautious but _ adjusting for his usual funereal demeanor _ quite upbeat. ``Although the uncertainties of earlier this year are as yet not fully resolved,'' he declared, ``the U.S. economy appears to have withstood a set of blows. Not surprisingly the depressing effects of recent events linger. Nevertheless, the fundamentals are in place for a return to sustained healthy growth.''
O.K., I cheated: those quotations come from his testimony in July 2002, not July 2003. Needless to say, ``healthy growth'' failed to materialize. Undaunted, he said pretty much the same thing last week _ and the result was to reinforce a huge sell-off in the bond market, which may undermine the very recovery he predicted.
I used to be a great admirer of Mr. Greenspan. But something has gone very wrong with the maestro.
His testimony last week was surprising on several counts. There is very little evidence in the data for a strong recovery ready to break out. As far as I can make out, Mr. Greenspan's optimism is entirely based on models predicting that tax cuts and low interest rates will get the economy moving. But that's what the models said last year, too: the report that accompanied his July 2002 testimony predicted an unemployment rate of 5.25 to 5.5 percent by late 2003 (the rate is now 6.4 percent). Maybe tax cuts mainly for the affluent aren't as effective as the models say.
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http://www.nytimes.com/2003/07/25/opinion/25KRUG.html