Horse running through field

Greenspan to the Rescue

by Roger Lyons

A recent Blood-Horse blog post, posted on September 27, drew the usual parallel between the performance of the stock market and demand in the commercial market for thoroughbreds. The post was occasioned by a USA Today report of an Alan Greenspan speech in which he argued that, as the blog post put it, “a sustained stock rally would be the ‘most effective’ stimulus for the sluggish economy.” As the post goes on to explain, “a rising stock market makes people feel richer, it inspires confidence, and it signals optimism in the future.” The point was to suggest that what’s good for the stock market is good for commercial breeders.

Feel-good macroeconomics has its place, but I’ve never felt that good about it. Maybe it’s because, around the time I first started hearing about the trickle-down theory–while studying at the University of Kentucky and doing odd jobs in the thoroughbred industry–I got my first Form 1099 ever, and it soaked up about everything that had trickled down to me. That was within the first year or two of the Reagan administration. I imagine he had economists who thought public policy that lavishly enriched the investor class would unleash such a mighty torrent on the rest of us that they needed to build a dam to stop the deluge (for our own good!), but, instead, the trickle just dried up.

And that’s when they started talking about supply-side economics–the if-you-build-it-they-will-come theory of macroeconomics. It was a reversion to the classical doctrine that supply creates its own demand–because, if people are employed in making stuff, they will be able to buy it. Only this time round, economic policy was in thrall to Alan Greenspan’s Ayn Rand fantasy, in which the invisible hand of the market doles out to all what they deserve–if only the policy makers just stay out of the way.

To some, it might have seemed a Yogi Berra moment when Dwight D. Eisenhower said, “things are more like they are now than they ever were before,” but his fellow Kansans knew what he meant. For nearly three decades after the war, the economic universe was expanding, and it was a patently Keynesian universe. It truly was how things should have been all along: driven by demand, wages high, unemployment low, leisure not just a retirement pipedream, and the top marginal tax rate–91%. That was the universe, by the way, in which American racing had its heyday.

But, when demand is high, it’s apparently the doom of policy to assume that supply is everything. What we have now, as a result, is the widest income disparity between the rich and the rest of us since 1928. That means, perforce, that unemployed, underemployed, and working- and middle-class Americans have no money to spend; and, at the same time, huge amounts of money are being committed to the very kinds of speculative investment that expose the economy to calamity.

The thoroughbred industry’s problem is a lot bigger than just a lack of demand for racehorses and breeding stock. Yes, commercial breeders experience it as such, and it’s painful, but, as I’ve argued before, it’s a mistake to think of thoroughbred sales as even a proximate function of effective demand. Those buyers are, in fact, investors in the system of production. Through them the system distributes young horses for training and channels breeding stock into more efficient use. They are suppliers, not consumers. I emphasize this point because, the more commercial breeders dwell on the faux-demand feature of what is really a supply function, the more they lose sight of effective demand, the consumer.

The consumers are the ordinary folks who used to watch and play the races–you know, the ones who’ve been impoverished by the cockamamie economic policies of the last 30 years. The economy of the thoroughbred industry is in the same demand trough as the larger economy and for the same reasons. It’s about unemployment, declining real wages, and diminished expectations. No matter how rich the rich are, it makes no sense to invest in thoroughbred production during a time when the ordinary people who would otherwise comprise effective demand for the product–as an object of beauty, grace, and wager–are losing their homes and livelihoods. That’s why anyone who cares about racing should raise a holy clamor whenever somebody whines, “If only the rich were richer.” Alan Greenspan?!. . . . Please!