Straight talk, unvarnished predictions.

Author:Leib, Barclay T.
Position:Economics - Paul Kasriel - Interview

Chicago hank economist Paul Kasriel has a growing reputation for cogent analysis and an accurate calling of the late 19909' stock market bubble. In an interview, he talks about recent events and looks to the near-term future.

Old jokes abound as to the inability of economists to predict anything correctly in real time -- and for the most part, these jokes are justified.

As of February 2001, only 5 percent of professional economists surveyed by Blue Chip Economic Forecasters thought the U.S. economy was entering a recession. As it turned out, of course, recession loomed just a month away. Yet it took the National Board of Economic Research nine months to discern this fact and issue a belated designation of March 2001 as the official start date.

Certainly, economists' use of equivocation -- "everything else being equal..." or "assuming demand stays constant, then..." -- is a well-known crutch. That's what makes Paul Kasriel, senior vice president and chief of economic research at Northern Trust Co., the big Chicago bank, so refreshing. In an era when most bank and brokerage house economists often look at the economy with rose-colored glasses, Kasriel's brand of economics can be best described as "the economics of what is, rather than what you would like it to be."

A native of Tampa, Fla., Kasriel moved to America's heartland in 1968, attended Indiana University and obtained a master's degree in economics. He started his career in the economics research department of the Federal Reserve Bank of Chicago, moving to the chief economist position at Northern Trust in 1986, where he has remained ever since.

But Kasriel is no Fed insider. Indeed, he has been outspoken enough over the years that the Chicago Fed now hardly acknowledges his existence, and consistently fails to invite him to its periodic luncheons of Midwest bank economists. Kasriel claims to be more amused than peeved by the invitational slight.

In 1998, Kasriel was one of the first economists to warn that undue Fed pump-priming would trigger an equity market "bubble," which would likely rack the U.S. economy. Late last fall, he presented a speech to a group of hedge fund and investment managers. Entitled "Greenspan: Maestro or Music Man?," it disparaged Federal Reserve Chairman Alan Greenspan's overall understanding of the economy.

Kasriel's articles, which typically are posted weekly at the Northern Trust Web site (, tend to be short and to the point -- as well as thoroughly readable and free of charge. Kasriel even has a droll sense of humor, often making allusions to his favorite sitcom, Seinfeld, which he still watches in reruns most evenings.

While not as well-known as such high-profile economists as Deutsche Banc Alex.Brown's Ed Yardeni or UBS Warburg's Maury Harris, Kasriel's brevity and the completeness of his analysis make his "Positive Economic Commentary" page among the most-visited economic sites on the Web. His profile is also set to rise shortly with the publication of his first book, Seven Indicators that Move Markets (McGraw-Hill), co-authored with financial writer Keith Schap.

In late 2001, FE sat down with Kasriel to hear more of his thoughts.

Q. Paul, you have been an outspoken critic of Alan Greenspan for some time now. What exactly is it that you think he's done wrong?

Kasriel: As you may remember, Greenspan made a brief foray with his "irrational exuberance" statement of 1996 to dampen speculative forces in America. But when his warnings were not politically well-received, and equity markets kept rallying anyway, he quickly became a "New Era" convert, overly focused on the...

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