Iconomics: The Rhetoric of Speculation
An advertisement for an investment firm
Everything began with speculation. Speaking to members of the American Enterprise Institute, on 5 December 1996, U.S. Federal Reserve Board chairman Alan Greenspan reflected, “How do we know when irrational exuberance has unduly inflated asset values?” Two days later, the Chicago Tribune offered the following account of what ensued:
As soon as reports of his comments flashed across their screens, traders seized on the fact that the chairman of the most powerful central bank in the world was wondering aloud about “irrational exuberance” in stock and bond markets. Tokyo’s key Nikkei index ended down more than 3 percent, the biggest one-day drop this year; on the Hong Kong market, the Hang Seng index posted its biggest point drop since March; the German DAX ended the session down 4.05 percent; on the Paris market, shares closed down more than 2 percent after a mass sell-off, and British stocks suffered their biggest one-day loss in four years, dropping 2 percent.
In the United States, the widely watched Dow Jones industrial average plunged more than 144 points, or 2.2 percent, at the opening, before
recovering during the day to close with a loss of 55.16 points, or less than 1 percent, at 6381.94.1
The Tribune’s account of events was typical. Media reaction was chiefly focused on the question of whether Greenspan meant to bring about the consequences that followed his statement: “Many analysts thought the result was intended, although, as one put it: ‘We’ll never know. The signal is in the eye of the beholder.’”2 National Public Radio pointed out that the chairman’s concern with the effects of his public statements has led him, over the years, to be “often intentionally bland.” One NPR analyst insisted, however, that in this case Greenspan’s words were “carefully chosen” to have the effect they did, with the putative goal of “taking some of the air out” of the market in order to avoid a major downturn should interest rates go up in the near future.3 On this account, which was common to those media economic analysts who believed Greenspan had acted deliberately, the chairman was engaging in risk management. It was certainly convenient that he made his statement when U.S. markets were closed, with the result that the domino effect reached them last, providing ample opportunity for heads to cool and effectively limiting the losses stateside compared to those in Asia.
Early in the Tribune story, Greenspan is said to be considered “the second most powerful man in the world” after then-president Bill Clinton. But if there is a difference in the degree of power between the two executives, there would also seem to be a difference in kind. The U.S. chief executive is in a position to launch armies and weapons of mass destruction, and the highly complex economic, political, and military infrastructure that forms the substance and instrument of his institutional power can be deployed through a series of executive orders. This makes it possible for the president to effect policy objectives through indirection, such as hints, threats, promises, or suggestions. All these would derive their efficacy from the institutional power of the presidency, that is, from the fact that the president can make things happen in the world.
End of Excerpt | Access Full Version
Notes
I would like to thank Dilip Gaonkar for the boundless energy and generosity with which he has consistently offered me the benefit of his vigorous intelligence and thoughtful friendship.
- John Schmeltzer, “Stocks Get the Message,” Chicago Tribune, 7 December 1996, 1.
- Schmeltzer, “Stocks Get the Message.”
- “All Things Considered,” National Public Radio, 6 December 1996.