Sunday, January 31, 2010

The Truth About Alan Greenspan and Ben Bernanke

Simon Johnson has an important piece on the "colossal failure of government" as a result the Ben Bernanke reappointment. It is must reading, here.

Please forgive him for his closing comment:
Ultimately, sensible democratic governance prevails in the United States.
Afterall, he is part of the establishment. Ignore this and applaud him for kicking huge amounts of sand in the face of his fellow establishment buddies.

In the piece, Johnson not only speaks truth to the establishment about Bernanke, but he also takes on Alan Greenspan. Of Greenspan, he writes:
Unfortunately, two massive failures of governance at the level of the Senate also spring to mind: first, the strange case of Alan Greenspan, which stretched over nearly two decades; second, Ben Bernanke, reappointed today (Thursday).>

Greenspan, as you recall, was worshiped as some sort of economic magician. Even his most asinine comments were seized upon by a legion of acolytes. Instead of providing meaningful periodic oversight, every Senate hearing was essentially a re-coronation.

And now we can look back over 20 years and be honest with ourselves: Alan Greenspan contends for the title of most disastrous economic policy maker in the recent history of the world.
Yes, Greenspan was worshipped for his asinine comments and it is significant to see Johnson, former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers acknowledge the nonsense in Alan Greenspan pronouncements. This view is becoming more prevalent by the mainstream.

But there was only one economist in real time who recognized Greenspan as a phony, right from the start, and had the courage to write about it then. That was the great economist Murray Rothbard. Rothbard's early writings about Alan Greenspan are now must reading in light of Johnson's comments. Read them here. (Please note the link is to two Rothbard pieces. There is a bit of a problem in the layout of the Rothbard writings and the identification of the dates they were originally published. The first piece was published in 1987, when Greenspan was first confirmed by the Senate as Fed chairman. The second was published in 1991, at the time of Greenspan's reconfirmation.)

The death of Rothbard in 1995 was the only thing that prevented a further attack on Greenspan as Greenspan opened the money spigots to fuel the housing bubble that is now causing financial devastation for many. That job was left to the students of Rothbard such as Stefan Karlsson, Peter Schiff and myself.


  1. Unfortunately Johnson's objection is that Greenspan was too laissez-faire and not enough of an interventionist. It's like if I roll my eyes about the president and the guy next to me says, "I hear ya! I thought I was voting for someone who would push through government health care."

  2. how did Rothbard die? Many people died mysteriously around the Clinton years. Greenspan was quoted, that Bill Clinton was the smartest man he had ever known.

  3. @BobMurphy

    I don't think that is necessarily the case with Johnson. I make clear that he is establishment and he has recently been calling for more regs over banks, but I don't thonk his critique of Greenspan is "Hey, Greenspan didn't inflate the housing bubble enough."

    Johnson and other establishment types are not applying as a general case to all boom bust cycles but they are calling Greenspan out for manipulating interest rates excessively low.

  4. Maybe he talks about low interest rates somewhere else, but in this particular article this is all I see to explain why Johnson thinks Greenspan was bad:

    And now we can look back over 20 years and be honest with ourselves: Alan Greenspan contends for the title of most disastrous economic policy maker in the recent history of the world.

    Some on Wall Street, of course, would disagree - arguing that the financial sector growth he fostered is not completely illusory, that we have indeed reached a new economic paradigm due to the Greenspan tonic of deregulation, neglect, and refusal to enforce the law. Prove the ill-effects, they cry.

    What part of 8 million net jobs lost since December 2007 do you still not understand?

  5. Yeah, I can't argue with that quote, he isn't laissez faire by a mile. But I was more focued on this, when I wrote my comment:

    Here's what markets really care about: credible fiscal policy, sufficiently tough monetary policy, and the extent to which big banks will be allowed to run amok - and then get bailed out again.