"The Economist" not bullish on Greenspan


In an article entitled "Monetary Myopia" in The Economist, the editors of the British news and economics magazine take aim at Alan Greenspan, whom they say is over-rated. "On Mr Greenspan's watch, America has also experienced the biggest stockmarket and housing bubbles in history," The Economist points out. "Presiding over one bubble could be seen as bad luck; presiding over two smacks of carelessness. The Greenspan era will not end on January 31st. Instead, his legacy will linger in the shape of the biggest economic imbalances in American history: a negative household saving rate and a record current-account deficit. Until these imbalances unwind—a process that could prove painful—it is too soon to applaud Mr Greenspan's record."

Yet again we find a foreign publication getting it right, while domestic commentators continue to get it wrong. Here in America, if Greenspan is criticized at all, he is criticized for raising interest rates in 2000, around the time the Stock Market Bubble began wheezing toward (though never reaching) more sustainable levels. He shouldn't have been (or so say these critics) so anal about inflation. There was no inflation at the time. So why raise interest rates?

The Economist will have none of this. "The Economist's long-running quarrel with Mr Greenspan is that he chose not to restrain the stockmarket bubble in the late 1990s or to curb today's housing bubble," states the London-based magazine. "The economy has fared better than we expected since share prices slumped, with only a mild recession in 2001. But a better test of Mr Greenspan's policies is not whether America escaped a deep recession, but whether the economy would today be on firmer foundations if the Fed had acted against that bubble."

Why so few economists and other self-anointed experts here in the U.S. understand this is anyone's guess. I would like to blame it on how the economics profession is taught in Universities here in America, but economics is taught nearly as badly in the U.K. It must have something to do with the inability of Americans, particularly those involved in dubious economic speculations (i.e., nearly everyone on Wall Street), to face fundamental truths.

The Economist article concludes as follows: "In December Mr Greenspan was made a Freeman of the City of London. One of the traditional perks of this honour is that he can be drunk and disorderly without fear of arrest. The snag is that his policies have also encouraged drunk and disorderly asset markets and intoxicated consumers. When the party ends, Mr Greenspan will not be there to clean up the mess. But end it surely will."

Posted: Thu - January 26, 2006 at 05:05 PM          

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