Economics

Greenspan: Always Wrong

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Interesting review of a new book on former Fed chair Alan Greenspan. The book's theme is summed up by its title: Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, by Frederick Sheehan.

Reviewer Ryan McMaken hits the low points of a man who never deserved his awesome reputation, and was an imaginative apologist for inflation and the notion that what went up was naturally going to stay up:

Sheehan meticulously documents Greenspan's commentary through the 1990s and into the last decade. From 1987 to the end of his term, Greenspan inflated the money supply nonstop. Interest rates, while occasionally moved slightly upward by Greenspan's Fed, fell again and again with Greenspan always claiming that there was neither a stock market bubble (as he did in 1999) nor a housing bubble (as he did in 2006).

In all this time, Greenspan virtually never considered inflation to be a serious problem, or even a potential problem….Greenspan instead created convoluted theories to explain why such inflation was not a problem, and why growth would constantly provide a fail-safe protection against price inflation.

His most famous theory of this sort was his productivity theory. For years, Greenspan waxed philosophical about how productivity due to new technologies would prevent imbalances in the economy from such massively loose monetary policy. This theory, coupled with a restructuring of the CPI to drive down the official inflation rate in the 1990's, allowed Greenspan to claim there was hidden wealth being created behind the dour statistics….

Greenspan criticized American consumers for not spending enough on consumer goods and real estate. For Greenspan, consumer spending was essential regardless of where one got the money. So, in 2001 when Greenspan, who greatly approved of cashing out home equity to buy consumer goods, observed that the "general level of consumer expenditures seems to be holding up, I suspect in large part because of capital gains in homes," the next great bubble had already been set in motion…..

Greenspan also had no qualms about becoming the real estate industry's best friend in denouncing all talk of a housing bubble. In 2002, building on Greenspan's forecast, the chief economist at the National Association of Home Builders declared that "[t]he time has come to put this issue to rest. The nation's home builders have said it…and now Alan Greenspan has said it once again, in no uncertain terms; there is no such thing as a current or impending house price bubble."….

Although Greenspan had always had a terrible record on perceiving trends in the economy, Sheehan's story shows a Greenspan who becomes increasingly out to lunch with each passing year as he spun more and more outlandish theories about hidden profits and productivity in the economy that no one else could see…..

Sheehan excellently catalogs Greenspan's rise to power as an affable technocratic politician who played the part of an economist with a knack for numbers and for justifying inflationary policies that made Presidents and Congressmen happy. Greenspan always told everyone what they wanted to hear. The rich and famous basked in his perceived genius.

Check out Reason magazine's November 2006 forum on Greenspan's legacy (and the prospects for Bernanke), featuring one of the last interviews with monetary economics legend Milton Friedman.

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  1. Greenspan was so at home with cognitive dissonance, in fact, that years later, when Congressman Ron Paul gave Greenspan a copy of “Gold and Economic Freedom” and asked the Chairman if he’d like to add a disclaimer, Greenspan responded “No…I wouldn’t change a single word.”

    I doubt that’s cognitive dissonance. It’s the confession he’s safe to make, because the audience for it is powerless.

    1. It’s all right, Alan. I love your quirky sense of humor!

  2. Good article on an important topic.

    Unfortunately for Al Greenspan (the Rand acolyte) no one respects him anymore.

    He is SO 1999.

    Al Green won!

    1. Unfortunately for Al Greenspan (the Rand anti-acolyte) no one respects him anymore.

      FTFY

      I don’t think Keynesianesque manipulation of interest rates would in any way be considered Randian.

      1. For shrike and other leftists who haven’t read much economics:

        From 1987 to the end of his term, Greenspan inflated the money supply nonstop. Interest rates, while occasionally moved slightly upward by Greenspan’s Fed, fell again and again with Greenspan always claiming that there was neither a stock market bubble (as he did in 1999) nor a housing bubble (as he did in 2006).

        John Maynard Keynes said that the reason people are poor and the economy is not growing is because interest rates are too high. Governments should intervene in markets to keep interest rates low. While that leads to a boom, governments should never try to moderate the boom by raising interest rates since high interest rates produce slumps or busts. The government-insured low interest rates will produce a perpetual boom.

        Greenspan’s actions are clearly Keynesian.

        1. IIANM Rothbard called out Greenspan on his Keynesianism when they were both on good terms with Ayn Rand and “The Collective”. Rothbard was the one that got expelled from the club.

  3. Greenspan the “Forrest Gump” of economics.

    Sorry my mistake, Forrest generally improved peoples lives!

    1. Maybe “Chauncey Gardner” of economics

      1. More like the Obama of economics.

  4. Wasn’t it Greenspan that suggested the Euro would eventually replace the dollar as the world’s reserve currency?

    1. He tried his best to make it happen, didn’t he though? What he failed to realize was that their central bankers are even more spendthriftish than we are.

  5. Mr Doherty forgot to give us the mandatory Greenspan visual aid.

  6. Oh, come on now. Greenspan kept consumer prices stable for his entire time at the Fed, despite having to deal with two recessions, wild changes in oil prices, and the internet boom. That was his job. His ONLY job.

    Yes, he didn’t do anything about the housing boom, because that wasn’t his job. It’s not the job of the Fed to stop people in Califoria, Florida, and Nevada from bidding up housing to absurd levels. What was he supposed to do, magically cut the money supply in Florida but not in Michigan?

    1. If productivity is increasing (as he claimed), prices should go down.

    2. Just like it is the “job” of the president to go to war and loot citizens relentlessly. Nice going president !!!

  7. All this and it misses two huge fuckups by Greenspan. Pimping ARMs when interest rates were at all time lows and saying that budget surpluses were a threat to economic stability and encouraging Congress to bring back federal deficits under the Bush administration.

    1. I doubt they needed much encouragement.

    2. “pimping ARMs when interest rates were at all time lows”

      I’ve never particularly like this specific critique of Greenspan. Yeah, he was wrong about this, but nobody that was taking out ARM’s was paying attention to what a fed chairman says at a congressional hearing. There were no Countrywide or Ditech commercials touting his remarks.

      He did have a point about ‘paying down the debt too quickly’ with the nature of the money supply in the modern world economy. His error, which is in itself unforgivable, was not recognizing that the surpluses were all the result of the cap gains revenue from the tech bubble.

  8. In all this time, Greenspan virtually never considered inflation to be a serious problem, or even a potential problem

    And yes as qwerty said, inflation – that is the core-CPI – has not been an issue since 1987. It’s not an issue today.

    1. Inflation not an issue? So, what, did housing prices not inflate over the past decade?

    2. I think we’ve proven that just looking at CPI, and calling that “inflation”, is an issue though.

  9. Greenspan is an Illuminati who did his part to bring about the NWO. Forget his words and look at his actions.

  10. Greenspan wasn’t always wrong. He had the right ideas up until he stopped being a follower of objectivism. There is evidence of this in the book Capitalism: The Unknown Ideal.

  11. As several people have already pointed out, pissing on Greenspan for ignoring inflation ignores the fact that inflation was never a problem on his watch. His real failures lay elsewhere.

    When Bush came in in 2000, Republicans, pissed that Greenspan had been so “nice” to Clinton, demanded that he man up and swallow Bush’s abysmal tax cuts cum spending increases, which he did. Greenspan did everything he could to make the economy boom in the Bush years, both out of loyalty to Bush and to worries about the impact of 9/11 on the economy, never willing to notice the extent to which Bush’s wild spending on the “War on Terror” (plus domestic horrors like the prescription drug plan) was going to fuck up the economy.

    Greenspan’s real crime, to which he actually confessed, was his constant conviction that markets were inherently self-policing, a belief that “Reason” has unreasonably clung to as well.

    Big Al was the only true acolyte of big-dick-swinging Ayn Rand to hold high authority. It’s a bit much that “Reason” is happy to piss on the guy when his, u no, libertarian ideas didn’t quite work out the way he planned.

    1. If he was a “true acolyte” he wouldnt have taken the job. He didnt follow “libertarian ideas”. Did he end the Fed?

    2. Alan Vanneman: you are the idiot of this thread. Sit down and shut up.

  12. Big Al was the only true acolyte of big-dick-swinging Ayn Rand to hold high authority. It’s a bit much that “Reason” is happy to piss on the guy when his, u no, libertarian ideas didn’t quite work out the way he planned.

    Your idiocy is breathtaking. Greenspan was a Keynesian/monetarist.

  13. All I want from the media is ONE interviewer to ask Greenspan why he took the job that Galt turned down.

    Actually, too late, I dont care what Greenspan would say now.

    Stupid MSM.

  14. Greenspan’s rotting corpse should be hanging from a lamppost in front of the Federal Reserve Bank in Washington.

  15. Dollars represent debt obligations of the Government to the Federal Reserve. Each dollar circulated has a debt obligation of interest due. How do you pay interest in the same specie as the original debt, paying this interest only incurs more debt through the printing of more of these debt obligations to service said debt.

    Classic Catch-22, there is no way out.

    Their faces may not show it, but they are laughing at us.

  16. Greenspan is terrorist to workerbees since he does not want workerbees to ever accumulate money. That’s how you keep people in their place like now.

  17. Greenspan’s rotting corpse should be hanging from a lamppost in front of the Federal Reserve Bank in Washington.

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