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One of my complaints about Greenspan's strategy has been that if people are expecting a rate cut, they will hold off on transactions that would leave them stuck at the current rate. By contrast, if people perceive that rates are going up, they'll try to lock in today's rates.

Of course, the difference between long-term and short-term rates means such behavior is not always effective. If there's a perception that short-term rates will drop, that drop will likely factor into long-term rates. Likewise if there's a perception that they'll rise. I don't think this is fully factored in by the market, though, since mortgage rates have tended downward even though they only place short-term rates can really go is up.

BTW, two points about taxes:

This country is somewhat like a shopping mall that's losing tenants (as businesses go overseas) and losing money. What is the best strategy for the owner of such a mall: (1) raise rents; (2) reduce rents; (3) chain the doors so businesses can't leave?
Part of the Senate's tax-cut package is a reduction in a certain foreign-business-income tax from 38% to 5%. I don't know how much revenue this tax covers now, or how much it will cover if it's passed, but suppose that there is today $10B in such revenue brought into this country yearly (netting $3.8B in tax). According to the Democrats, this cut will cost $3.3B in yearly tax revenue). Suppose, though, that after the tax cut, the amount of money brought into the country increases from $10B to $100B (netting $5B in taxes). Democrats won't say the tax cut brought in an extra $1.2B revenue. Instead, they'll claim it's costing $33B in revenue--ten times as much as expected.

That brings us back to the original issue of tax cuts, rate cuts and spending cuts... Cut all three, and the American economy might shed the shackles that keep us spinning our wheels without going anywhere.

The government has just been playing with the first two. They have completely ignored the third.

When they get serious about spending cuts - hundreds of billions of dollars of them - then this economy could start a meaningful recovery. Until then, it's balancing on a three legged stool having only two uneven legs.

Excellent essay/oped.

I would add one other critical time point in your time line.

When Jeffords came out of the Closet a year ago and joined the Tax and Spenders, Da$$hole, Hildebea$t, et al, their proposed spending increases and proposed increased taxes scared the hell out of investors on Main street and in Wall Street.

Go to any stock tracking service and look at a two year graph showing DIA, SPY, MDY and any other index. We were on the way to coming out of the 9/11 tragedy. Look at where the markets were and trending up until May 2002. Post Jeffords gave into the fear of higher taxes and more spending, and the markets came sliding down.

When Jeffords came out of the closet and joined the tax and spend dark siders, Wall Street investors and yours truly went back into the bond market.

We need 60 Republican Senators to clear the way in 2005 for more tax cuts, less spending on social welfare and the other positive things you mention.

In the mean time low interest rates, the new tax cuts and the elimination of the double taxation on dividends will be a big help.