Paradigm lost
WHAT a pity about the new paradigm. We seem to have lost it. This reassuring doc- trine taught us that the world's biggest econ- omy could motor along at full speed without overheating. (It was all down to productivity and innovations and dot.coms.) Even the great Alan Greenspan, sage of the US Fed- eral Reserve, seemed willing to cruise along with it. Now he has slammed on the brakes. At 6.5 per cent, American official interest rates have moved above our own, in response to clear signs that the economy is accelerating and that inflation is not, after all, extinct. This will disappoint believers in the Greenspan two-way bet, which assumes that when stock markets fall he will cut rates to cheer them up, but that when they rise he will look on benignly. It must also shock those who believe that he has miraculous powers and can cure chilblains. They brush aside his warnings because they assume that he has everything under control. Not exact- ly. The Fed has let itself fall behind the curve of events and is trying to catch up. It cannot even be sure that this stamp on the brakes will suffice, but it knows that interest rates, if they are high enough for long enough, will bring any boom to an end.
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