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Patron of the boom -- ASSUMING THAT THE CREATOR does not interfere--He would be guilty of lese-majeste--the fourth branch of government, a k a Alan Greenspan, 73, is shipshape for four more years. Ironies abound.

Greenspan's predecessor as chairman of the Federal Reserve Board, Paul Volcker, was nominated by Jimmy Carter. Volcker's task was to extinguish inflation. Inflation, like the Iranian hostage crisis and the oil shocks of the late 1970s, told Americans they had become playthings of forces their government could not master, and that their government could not protect the currency as a stable store of value.

Volcker's eventual success against inflation was crucial to the 49-state reelection victory of the man who defeated Carter in 1980. Now Bill Clinton has renominated Greenspan, who was nominated to his first term by President Reagan. Clinton's hope is that his legacy, a k a Al Gore, can run on President Eisenhower's 1956 slogan of "peace and prosperity."

Clinton began his first term exasperated by the need to keep the bond markets mollified by restraining public borrowing and dampening fears of inflation. Bob Woodward, in his book "The Agenda: Inside the Clinton White House," reports Clinton exploding during an April 1993 meeting with aides:

" 'I hope you're all aware we're all Eisenhower Republicans,' he said, his voice dripping with sarcasm. 'We're Eisenhower Republicans here, and we are fighting the Reagan Republicans. We stand for lower deficits and free trade and the bond market. Isn't that great?' "

Certainly it is pretty good for conservatives, who should see, as Stephen Moore of the conservative Cato Institute says, that "on balance [this] has not been a liberal presidency."Jonathan Chait, writing in the liberal journal the American Prospect, exaggerates only a bit: "Clinton's economic program is far more fiscally conservative than anything a president of either party would have dared propose anytime in the past three decades."

What Chait calls Clinton's "progressive fiscal conservatism" means less public borrowing, more private investing, lower short-term interest rates, a bond-market psychology conducive to low longer-term interest rates. This has produced "a strange reversal of historic roles." Liberals speak of growth. Conservatives, their vocabulary preempted, speak as liberals used to, in moral rather than economic language. They promote a tax cut as "fair" and "deserved" rather than needed for economic efficiency.


Clinton's reverence for a central banker like Greenspan is historically anomalous, even if the Fed was created by a Democratic president, Woodrow Wilson. Clinton's party celebrates its pedigree with annual Jefferson-Jackson Day dinners--Jefferson, no friend of banks, and Jackson, scourge of the national bank.

Greenspan, then in the private sector, campaigned with Reagan 20 years ago, when conventional economic wisdom was pessimistic. The theory was that inflation is the systemic disease of democracy: The dynamic of democracy--people wanting to consume more than they produce--produces inflation, and the low pain threshold of democratic people makes it impossible for democratic governments to suppress inflation. That theory was slain by a fact: Despite the 1981-82 recession--the worst since the Depression--in 1984 Reagan carried every state but Minnesota.

"The Buck Starts Here," proclaims a sign in Greenspan's office, epicenter of economic policy, from which he has seen something no other economic policy-maker has seen--a fundamental transformation of America's economy during his tenure. The transformation is the "dematerialization" of the economy.

Greenspan says: "While the weight of current economic output is probably only modestly higher than it was a half-century ago, value added, adjusted for price change, has risen well over threefold."

That is, 50 years ago "output" meant "things, big physical things." But soon "concepts and ideas would substitute for physical resources and human brawn." As examples, transistors replaced vacuum tubes in radios, delivering higher quality with a fraction of the bulk; fiber optics replaced huge tonnages of copper wire; architectural and engineering advances produced buildings with much greater floor space but significantly less physical material.

The resulting wealth creation is radiating large, if unpredictable, consequences. Neal Freeman of the Foundation Management Institute says America is about to experience a stunning intergenerational transfer of wealth; "The Reagan entrepreneurs, lots of them, are about to leave large estates, lots of them, to their baby boomer children." Between now and 2020 Americans between ages 35 and 53 will inherit $12 trillion. "Nothing of this financial magnitude has ever happened--in this economy or any other--and its effects on our society will be transformational."

That may trigger irrational exuberance, and then a scowl from the fourth branch.

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