Greenspan Argues Against the Fed
Former Federal Reserve Chairman Alan Greenspan has not explicitly argued against the Federal Reserve Bank or any other central bank, except in his long-ago essay on gold in the collection of essays entitled Capitalism: The Unknown Ideal. As Chairman of the Fed for 18 years, I find it unlikely he has contemporaneously and explicitly disavowed the institution he helmed for such a long period of time.
Nevertheless, he did make quite an effective, albeit unintentional, argument against the Fed on his 60 Minutes interview Sunday night. The interviewer asked whether he was to blame for the sub-prime mortgage crisis by making credit too easy. Greenspan said that he was aware at the time that questionable mortgage credit was being extended by banks, but he admitted he was unaware how pervasive it was or how impactful on the economy. He just didn't see the problem as it was developing.
That is his argument against the Fed, whether he realizes it or not. No central banker, no matter how good, can possibly hold in his mind all relevant information to centrally manage the money supply and credit of an economy. Such is the fallacy of central planning. It doesn't work in banking, just as it has never worked in any other area of an economy. The collapse of Communism is proof of that. So is the failure of the centrally managed parts of our mixed economy, such as public schooling and public housing.
Greenspan is smart, but no single man or woman is smart enough to be a central planner.
Sunday, September 16, 2007
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2 comments:
Over the years I have argued to anyone that would listen that Greenspan was a "sheep in wolves clothing." Like Mission Impossible his job was to save a country that had a Welfare state economy and a Keynesian perspective on deficit spending and fiat money from total collapse. There was only one man for the job -- a man who understood the danger and who was willing to talk gobbledygook to congress to keep interest rates from creating inflationary pressure. He did just that. I always ask the people who berate him, what did you expect him to do? And did he ever hide -- in fact at the time he flaunted at the risk of not being confirmed -- his open association with Rand. I don't think his argument against central banking was unintentional at all.
You could be right. I plan on reading his autobiography to gain further insight into the man.
As for his record at the Federal Reserve, from my vantage he kept inflation in check during most of his tenure, except for over-inflating in his last few years, for which we are suffering now. His record as Fed chairman was overall as good as can be expected, given the flawed nature of the institution and the impossibility of anyone getting it right.
You are saying that he also knew that the Fed was flawed, but that it was better that he, with his capitalist knowledge and perspective, helmed it than someone who actually believed in the institution.
If I judged him as the author of his articles in Capitalism: The Unknown Ideal, I would have to agree with you.
I will let you know what I think after I read his autobiography.
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