Readers Report
How Responsive Should the Fed Be?
Re "The future of the Fed" (Cover Story, Dec. 16), I write as one who was employed by the Federal Reserve Banks of Chicago and Dallas from 1946-1980, working largely in the monetary-policy area, attending all meetings of the Federal Open Market Committee during much of this period. BusinessWeek conveys the impression that monetary policy has the capacity to exercise essentially complete control of the economy, i.e., gross domestic product, inflation, unemployment, balance of payments, dollar exchange rate. It doesn't.
Efforts to fine-tune the economy cause more harm than benefit. The real economy cannot respond quickly to changes in economic policy and should not be expected to. Rigid rules for monetary policy will not work and will not be tolerated politically because of severe side effects in the short term to realize specific targets for money stock, inflation, commodity prices, etc.
The idea that monetary policy actions must be known well in advance in order to avoid destabilizing the economy embodies unrealistic views of our ability to forecast and of the potency of monetary policy to override effects of fiscal policy, wage practices, bubbles, etc. Flexible policy based on current analysis and seasoned judgment of politically independent systems holds the best hope.
Ernest T. Baughman
Scottsdale, Ariz.
Editor's note: The writer was president of the Federal Reserve Bank of Dallas from 1975-80.
In enumerating the three schools of thought vying for primacy in a post-Greenspan period, you fail to identify the one type of policy that has recently prevailed and will continue to do so. It can be called pragmatism, or "realistic responsiveness to changing economic circumstances." The past two decades have been characterized by lessening severity of the business cycle and lower average inflation than the preceding 60 years. Significantly, the Fed's results improved when it loosened the successive ideological blinders of the gold standard, Keynesian demand-side management, and monetarism. Dogma breaks down under real-world pressure.
Hunting for and seeking to curb bubbles has to come second to the general objectives of promoting growth and curbing inflation. Flexible and adjustable monetary policy is preferable to the futile search for the philosophers' stone.
Francis H. Schott
Ridgewood, N.J.
Back in 1991, the Fed's Small Business Advisory Council advised the Board of Governors one year in advance to factor the impact of technology-driven productivity gains into its econometric models and to shift away from its anti-inflationary policy bias. The Fed's delay in reducing interest rates cost the economy severely (and cost George H.W. Bush the Presidency). Our current recession could have been far less severe had Alan Greenspan used the monetary policy tools at his disposal to send a stronger message to the markets.
Les Larsen
Golden, Colo.
Editor's note: The writer is a former chairman of the Fed's Small Business Advisory Council.
Another Take on Kozlowski's Rise at Tyco
BusinessWeek has presented a highly inaccurate and misleading version of Dennis Kozlowski's 1992 succession to me as chief executive officer of Tyco International Ltd. ("The rise and fall of Dennis Kozlowski," Cover Story, Dec. 23). The facts are straightforward and well-known to everyone who had a role in these events.
In 1990, the board and I discussed my intention to retire in two years from my executive role at the company. To ensure an orderly transition when I retired, we agreed on a plan that would put Mr. Kozlowski in a position to succeed me as CEO in 1992. In keeping with that plan, we named Mr. Kozlowski president and chief operating officer, and, two years later, as planned, we appointed him CEO. There was no backroom intrigue or "ouster" that brought this about. I cannot understand why BusinessWeek would concoct an alternative version of these events unless it wanted to paint Mr. Kozlowski as more Machiavellian than he really was and thereby create a more compelling story.
Also, there was nothing at all "remarkable" about the fact that I continued to serve on Tyco's board for many years after relinquishing my position as CEO because I believed and continue to believe strongly in the company regardless of the issues surrounding Mr. Kozlowski's departure.
John F. Fort
Houston
Editor's note: BusinessWeek's account was based on interviews of other sources with knowledge of the board's action to promote Kozlowski.
Greater China: Progress--and Misplaced Anxiety
As long as pragmatic leadership remains, China will flourish and progress while the countries ruled by religious conservatives will remain in poverty ("Greater China," Special Report, Dec. 9). Could BusinessWeek write a similarly hopeful report about the once-great countries of Egypt, Persia (Iran), Syria, Iraq, or Pakistan? In ancient history, these were the world powers. In the Dark Ages, while the Inquisition reigned in Europe, progress was stymied. As long as a radical religion suppresses the populations in these countries, they will not prosper, either. All they can generate is hate--based on jealousy--and terrorism.
Robert Marx
Christchurch, New Zealand
If China is Taiwan's top export market, the destination of its foreign direct investment, and the top choice for foreign university education, then what is the basis of U.S. concern about China's invading Taiwan? The 500,000-plus Taiwanese who have become residents in China as a result of Taiwanese investment would indicate that it is Taiwan that has invaded China.
Why is Washington obsessing about the dubious notion of China invading Taiwan? The facts presented and extrapolated say otherwise.
Mohamed Cassam
Annandale, Va.
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Copyright 2003, Bloomberg L.P.
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