10/21/2009 - On December 5, 1996, former chairman of the Federal Reserve Board, Alan Greenspan, wondered aloud in a speech at the American Enterprise Institute, “…how do we know when irrational exuberance has unduly escalated asset values..?” Asian markets promptly fell 3 percent. Frankfurt and London fell 4 percent. The technology-heavy NASDAQ composite index opened down the next morning before closing at 1,288. But the downturn was just a temporary blip. Over the next four years, the NASDAQ would more than quadruple in value, reaching 5,048 in March 2000. Only then, when the technology bubble popped, did the full irrationality of investor exuberance come crashing down on markets worldwide.
One can only hope that the lag between Larry Summers’ recent and cautiously optimistic musings that the battered economy may finally be supporting “green shoots” and the appearance of actual and meaningful improvements in the economy will be far shorter than the four-year delay between Greenspan’s initial question and the resounding answer. There is perhaps good reason to be hopeful. Key leading indicators are beginning to harden, though the economy remains fragile. Retail lending to consumers and businesses is still sluggish, but major banks are charging lower rates for overnight loans made to other big banks. The unemployment rate is still climbing, but initial filings have come off their earlier peaks. Consumer spending and the housing market are also showing signs of improvement.
In these turbulent economic times, the Pew Economic Policy Group continues to build broad and deep capacity across a handful of discrete initiatives, guided by our departmental white paper and the three main program areas authorized therein. The American Dream Program, which houses the Economic Mobility Project, maintains an active research agenda in support of the development of our policy roadmap to enhance economic mobility.
Perhaps not surprisingly, the Fiscal and Budget Program is extremely active. The Peterson-Pew Commission on Budget Reform has been meeting regularly with members of Congress as it seeks to develop strong recommendations for reforming the “rules of the road” with respect to how the federal budget is adopted, managed and enforced. At the same time, the Federal Budget Reform Initiative is beginning to publish targeted reports to raise public awareness about the need to implement tough budgetary reforms. And the Pew Fiscal Analysis Initiative, approved in June, has made a first round of senior hires and is gearing up to provide clean, crisp and objective analysis about the fiscal implications of emerging policy proposals.
Finally, projects within the Markets Program have been moving at full speed. Leveraging its early success tracking expenditures under the Troubled Asset Relief Program (TARP), Subsidyscope is producing insightful reports on subsidies to the transportation sector, and is also finalizing its work to aggregate energy sector subsidies. The Financial Reform Project has established an ideologically broad task force of 18 of the nation’s most authoritative voices on financial market regulation, and has quickly established itself as a trusted purveyor of seasoned and reasoned guidance to Congress on the major issues of financial reform.