Hating Alan Greenspan

Why is bipartisan wrath focused on this patient 74-year-old, who, after the American people, deserves most of the credit for nearly a decade of prosperity? Because some feel he's now endangering that prosperity by raising interest rates. In fact, he's hiked rates five times in the past year. One of the reasons he's doing so is that he's scared the torrid stock market is contributing to inflationary pressures in the economy. He's right to be cautious: the consumer price index recently came in billowing smoke, with its core number rising at twice the expected rate. That inflation figure contributed to the NASDAQ's 10-percent plunge on April 14 ("Black Friday").

But being right on inflation clearly ain't what people want from central bankers these days. Just listen to Ian Williams of Salon and The Nation. In a piece earlier this month for Salon, Williams said stock prices fell "in anticipation of irrational despondency" from Greenspan. He said the Fed chairman was "threatening to spoil the party" with "his single-minded obsession with, and strange definition of, inflation." Left-leaning Prof. James K. Galbraith got just as huffy. Commenting on Greenspan's testimony at a recent White House conference on the New Economy, Galbraith, in an article for TheStreet. com, described him as "a desperate man, reaching for any argument to defend what cannot be defended."

On the right, The Wall Street Journal's editorial writers have been deeply skeptical of Greenspan. As recently as late March, they said: "a respectable case has been building that the Fed should indeed keep rates snug." And, quite unreasonably, they got frustrated with the central banker for failing to tell investors where he wants stock prices to be. "A policy that leaves investors guessing what Dow and Nasdaq levels make the Fed Chairman uncomfortable can only fuel a volatile market as buyers and sellers jump in and out of stocks." Kevin Hassett, a scholar at the right-wing American Enterprise Institute and coauthor of the bestselling book Dow 36,000, said on Black Friday: "Greenspan has implied his desire to see the market drop... I think Greenspan has been wrong about the market for four or five years, and now he wants to be proved right."

It would be easy to dismiss the left's anti-Greenspan feeling as another example of its well-documented lack of understanding of economics. But it's more complex than that. Under Clinton, many on the left have learned to love the stock market. Yet they're conflicted about it, as a just-published book by Daniel Gross, Bull Run, unwittingly makes clear. Gross' thesis is that the stock market is now ideologically pure because, through their widespread participation in mutual and pension funds, it's making ordinary people richer. He calls this the "democratization of money" and he believes that the "financial services industry is emerging as a genuine force for social change."

Few would deny that it's great for more people to be getting involved in the market. However, Gross' book shows that the old left's anti-rich prejudices are still strong. At one point in his book, he describes a visit to an Alabama golf course. He decides it's a good golf course because it's been sanctified by working people, its main users. The flip side of this, of course, is that the other golf courses are evil because "well-heeled, lily white" country-club snobs still play on them. And it is this class hatred that will inspire attacks from the left on any public figure?Greenspan, most visibly?who dares to arrest the decline of stock prices. The Fed Chairman is watching something called the "wealth effect," which is when rising stock prices fire consumption. As he acts to reduce that wealth, he risks being labeled a destroyer of working people's livelihoods, now that so many people are in the market. In fact, a stock market crash could be the New Democrats' undoing. And it would be deserved. Their affection for something as shallow and flaky as the market mirrors their love for a president whose time in office bears those two characteristics in abundance.

Why should some on the right have it in for Greenspan? The right knows that it has won nearly every argument on economics. Like bright but overpraised children, they think everything they say is brilliant, when often it's more stupid than anything that comes from the dunces. The wealth effect obviously exists, and Greenspan is right to be worried about it. I sold out of my tech funds when the NASDAQ crossed 4000 at the end of last year, and went straight down to Brooks Brothers with some of the profits. You want hard numbers, too? Even after the market swoon, unrealized profits in the nation's mutual funds total $512 billion, according to Bianco Research. With a wealth reserve of that size, people are more likely to borrow and spend, believing (mistakenly) that they can always liquidate their holdings at a good price to pay off big bills.

Sure, it's not always a bad thing when the left and right unite on a cause?the open-minded on each side did this to great effect during the Kosovo war. It's certainly not the case that Alan Greenspan is infallible?as a young man he was a disciple of Ayn Rand, whose writings could convert anyone to socialism. And, admittedly, Greenspan-bashing is not particularly widespread. But his critics are getting louder and growing in number?just when we need him the most.

Peter Eavis is a reporter for TheStreet.com.