Greenie, Summed Up

You could say we were played by Greenie.... Well, everyone paying attention (actually, I have the famous Bolshevik writer Alan Abelson in mind) knew he was, um, blowing smoke, big time. But here's the chapter and verse, in honor of publication of what one could call Greenspan's pack of lies:

NEARLY MID-WAY THROUGH ALAN GREENSPAN'S bestselling memoir, The Age of Turbulence, the former Federal Reserve chairman mentions that other best-seller about his celebrated career, incongruously called Maestro. This reader could only imagine that, if Mr. Greenspan really was a "maestro," he was the sort who often did not know the tempo, or even whether the orchestra was playing Beethoven or the Beatles.

Greenspan's forecasting record was average at best, and the average was none too good. In his semi-annual address to Congress, his predictions about economic growth were correct only one out of six times. But anyone who does much better than average at forecasting the U.S. economy is probably having a lucky streak anyway. He made many mistakes, not the least of which was letting the boom of the late 1990s get out of hand -- one of the very things his hagiographers consider a triumph.

The author of The Age of Turbulence also reveals a surprising lack of interest in the argument that the Fed itself helps foster boom and bust. He does grant that the main alternative -- a free banking system under the gold standard -- is much better at containing inflation. But by portraying recessions as endemic to the capitalist system (he even compares them to natural disasters like hurricanes), he leaves the impression that the Fed plays no role in fostering irrational exuberance through the expansion of credit.

That is a far cry from the Alan Greenspan who once argued that, "under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth," a role that is subverted through "bank credit expansion" via the Federal Reserve.

Mr. Greenspan made that argument at age 40 (in an essay called "Gold and Economic Freedom"); it's a fair rendition of Austrian business cycle theory, put forward by Nobel Laureate economist F.A. Hayek, among others. Since his own intellectual development is supposed to be part of the story, it's surprising that The Age of Exuberance does not even mention the issue, if only to explain why the author has changed his mind about it. But what other former Fed chairman ever held such subversive ideas, much less published them?

We can praise Alan Greenspan for one main reason: Following the example of his predecessor Paul Volcker, and setting an example for his successor, Ben S. Bernanke, he did at times put his career at risk for the sake of his convictions about containing inflation.

Like most memoirs of a political figure, his account can often be refuted by the public record. But I believe him, for example, when he tells us that his reappointment in 1991 by the first President Bush was by no means a sure thing, given his refusal to play the inflation game.

The only parts of this book I recommend to the average reader concern inflation, especially on its likely reemergence by 2030 (pages 476 to 492). He candidly admits that his own efforts at containing inflation were greatly aided by the "potent disinflationary force" of "globalization's vast economic migration" of cheap labor into competitive markets. But by 2030, this will likely be played out, only to be replaced by the inflationary pressure of retiring baby boomers.

Let's hope someone with Greenspan's resolve is running the Fed then.

Link. And link for illo.