Confused about the manic swings of today's global economy? You should be.
                   Over the past 15 years or so, the mix of advancing technology and more open
                   markets has wrought a revolution in world finance, trade and production. Even
                   for experts supposed to be guiding us through all this, the complexities quickly
                   turn baffling. Just ask Alan Greenspan, chairman of the Federal Reserve,
                   whose job is to manage the U.S. money supply, and whose single most
                   illuminating remark in recent times may well have been that, "in the current
                   state of our knowledge, money demand has become too difficult to predict."

                                    True enough. Capital now flows around the globe on
                                    a scale trillions of dollars beyond anything possible just
                                    a generation back. Demand for funds is more than
                                    ever a moving target. The U.S. booms, setting
                                    records for stocks and job creation. Meanwhile, in a
                                    welter of competitive devaluations and wrecked
                                    financial institutions, much of Asia seems poised to
                                    fall back into the abyss. Japan has gone from
                                    Juggernaut Inc. to the world's biggest rotten bank
                                    system. Gold is turning into dross, plunging more than
                                    30% against the dollar since 1996. And for every pair
                                    of economists there are the usual three opinions over
                                    whether gold's drop portends world deflation or just
                                    cheaper jewelry.

                   Great Depression
                   It would all be a touch less bothersome were there fewer parallels to events
                   preceding the Great Depression of the 1930s. That remains an episode about
                   which there is much smart theorizing but as yet no sure understanding--except
                   that clearly it was an experience the world does not wish to repeat.
                   So who, or what, is keeping us all safe? If there is one man most in charge of
                   the course the world's economy now steers, it is arguably Mr. Greenspan.
                   Whether or not he knows how to predict the demand for money, he is at least
                   the single best-placed person in the world to influence supply. Standing
                   athwart the dollar, Mr. Greenspan's mission as head of the Fed is to manage
                   the U.S. money supply--via open market sales and purchases of U.S.
                   Treasury bonds--so as to maximize the long-run sustainable growth of the
                   U.S. economy. The core of that task involves providing for a predictable, and
                   preferably steady, value of the world's single most vital financial instrument,
                   the dollar.

                   And so it's the world, not just the U.S., that will be looking anxiously to Mr.
                   Greenspan this Tuesday, when he next chairs a meeting of the Fed's Open
                   Market Committee--to debate the appropriate price, or interest rate, for the
                   dollar. The goal of providing a stable dollar has become increasingly important
                   not just to the U.S. economy, but to world commerce--which, like any market,
                   craves certainty about the rules of the game. Businessmen everywhere seek
                   a stable currency in which to get their work done. As the world's reserve
                   currency, the dollar serves as the vital store of value abroad and the main
                   medium for loans and deals across borders. So it would be some comfort to
                   think that Mr. Greenspan knows just what he's doing.

                   Except, as Mr. Greenspan himself admits, he's got less and less of a clue.
                   Not that he doesn't offer some instructive ideas about the larger scene. As
                   Asia's crisis has rolled on these past few months, Mr. Greenspan has
                   delivered a wealth of talks and testimony on matters that do lend themselves
                   to clear comprehension. He has rightly outlined the need for better
                   governance in Asia. Looking ahead, he has praised the promise of new
                   technologies.

                   What Mr. Greenspan hasn't done, however, is tell us what the world most
                   needs to hear him say. He has not explained what rule, or set of rules, or even
                   what magic incantation the Fed is now following in trying to manage the value
                   of the dollar.

                   That sidestep is no accident. By Mr. Greenspan's own account, the
                   Fed--while trying to provide some maximum degree of certainty about the
                   dollar--is following no particular rule at all. In a speech Sept. 5 at Stanford
                   University, Mr. Greenspan gave his most detailed confession of this
                   dilemma. Increasingly since 1982, said Mr. Greenspan, "we have found that
                   very often historical regularities have been disrupted by unanticipated change,
                   especially in technologies." He went on to explain that in this fast-changing
                   era, he could find no clear rule that would amply guide policy decisions about
                   the money supply. So, said Mr. Greenspan, "policymaking, seeing no
                   alternative, turned more eclectic and discretionary."

                   Noting that "the current monetary policy regime is far from ideal," Mr.
                   Greenspan went on to list and discard assorted policy rules, such as a gold
                   standard, various fixed rules about growth of the monetary base, and rules
                   anchored to output and prices. He concluded that price stability, though vital to
                   maximizing economic growth, is hard to measure and getting harder: "The
                   simple notion of price has turned decidedly complex."

                   To illustrate his problem, Mr.Greenspan turned to one of the more complex
                   subjects that economists have begun to re-examine: labor productivity. By
                   lights of the old Phillips Curve model for economies, high levels of
                   employment carry the danger of inflation. In today's U.S. economy,
                   unemployment has for some years been falling toward the recent low of
                   4.6%. The Phillips model says this should have produced rising inflation--and
                   that ought to suggest the Fed should tighten interest rates. Instead,all the signs
                   are that for some time now, inflation in the U.S. has been falling.

                   This can be squared if productivity, output per worker, is rapidly rising, instead
                   of staying stagnant as it has since the early 1970s. Begging the question of
                   whether the Phillips Curve makes sense in any case, low unemployment
                   would not causes prices to rise if workers are producing more output. But this
                   raises the issue of what exactly we are talking about when we calculate
                   productivity.

                   The simplest notion of productivity involves sheer quantity of output, such as
                   tons of steel. But it is also possible to become more productive by making
                   goods or providing services of higher quality--which is exactly the direction in
                   which large parts of the U.S. economy have been evolving. In the early
                   1960s, economist George Stigler found big problems with government
                   calculations of productivity involving the steel industry. There were simply too
                   many differing qualities of steel being lumped together under output.

                   With leaps in technology, such difficulties in figuring productivity have
                   ballooned beyond the scope of most standard government measuring
                   techniques. With the advent of everything from computers, to lasers to
                   sophisticated financial instruments and advances in medical techniques, the
                   U.S. economy has begun producing a wealth of goods and services that are
                   either badly measured by official productivity statistics, or impossible to
                   measure at all. For example, one product of an automatic teller machine is
                   simply the time saved by bank customers who don't have to wait in line. That
                   means a more productive economy, but becomes awfully hard to measure.
                   Harvard economist Zvi Griliches, who heads a project studying productivity
                   for the National Bureau of Economic Research, estimates that by 1994, the
                   productivity of some 74% of the U.S. economy had become simply impossible
                   to measure with any accuracy, up from 53% back in 1948.

                   Begging the question of whether the Phillips Curve makes sense in any case,
                   this phenomenon raises the issue of what exactly we are talking about when
                   we calculate productivity. The simplest notion of productivity involves sheer
                   quantity of output, such as tons of steel. But it is also possible to become more
                   productive by making goods or providing services of higher quality--which is
                   exactly the direction in which large parts of the U.S. economy have been
                   evolving. With the advent of everything from computers to lasers to
                   sophisticated financial instruments, the U.S. economy has begun producing a
                   wealth of goods and services that are either badly measured by official
                   productivity statistics, or impossible to measure at all. Harvard economist Zvi
                   Griliches estimates that by 1994, the productivity of some 74% of the U.S.
                   economy had become impossible to measure with any accuracy, up from 53%
                   back in 1948.

                   Because official statistics still tend to focus on quantity, not quality, the odds
                   are that they understate real productivity by a substantial margin. Similar
                   problems apply to measurements of inflation itself. This is done by comparing
                   baskets of goods across time. But devising techniques to compare, say
                   computers of yesteryear with those today, or pharmaceuticals of the 1980s
                   with the best of the 1990s, is a tall order that economists have just begun to
                   really tackle. "How will we measure inflation in the future when our
                   data--using current techniques--could become increasingly less adequate to
                   tracing price trends over time?" lamented Mr. Greenspan in his Stanford
                   speech.

                   Harder to Answer
                   The current economic crisis in Asia has made such questions all the more
                   pressing, even as it has also made them harder to answer. The falling price of
                   gold--traditionally an indicator of the dollar's value--has left some analysts
                   wondering whether the U.S. is heading into a deflation. This would penalize
                   debtors and might help explain the buckling of heavily leveraged Asian
                   economies such as Thailand and South Korea. But in a world of swiftly
                   proliferating, ever more sophisticated financial instruments, there is now a
                   school of thought that gold is falling simply because it has become for
                   investors a less interesting store of value than alternatives such as the dollar
                   itself.

                   That sounds interesting, but what does it leave Mr. Greenspan to look to as a
                   benchmark? A clear answer would be a help to the world, but maybe the best
                   we can hope for is that Mr. Greenspan--as he ponders such problems--might
                   start to share with a world at least as puzzled as he is, the details of the Fed's
                   internal debates.

                   Ms. Rosett is a member of the Journal's editorial board.