Is it Greenspan's Fault?

ChrisR — Sun, 27 Jul 2008 23:25:00 GMT

Greenspan's book has been released, and it just so happens the recession that he helped create is occuring at the same time. I've been reading a lot of complaints about the many mistakes that Greenspan made as Fed Chairman. But how much blame does he really deserve? Is it all Greenspan's fault?

I would answer the question in the following way:

Instead of blaming one individual, perhaps we should look at the institution itself. If we blame one individual's decisions, then we end up talking in circles about "mismanagement." But a more important question is: "Should the economy be managed at all?" and "Is that even possible?"

History says no...as does the Austrian Business Cycle Theory.

As far as bad decisions that Greenspan made......I think the mistake (of any Fed Chairman) begins at the moment the Fed fixes interest rates, and the market rate is abandoned. That is when the crisis begins. Even though we call the return to reality a "crisis," the real crisis is when the price fixing and malinvestment (i.e., boom) occurs. I think everything else is just talk. If the market set interest rates, it would be impossible to have conversations about "mismanagement," and who has a better "plan."

I think Ron Paul has set an excellent example on how to think about these matters. You never hear Dr. Paul blaming specific individuals at the Fed. In fact, if I recall correctly, he's said several times that we can't place all of the blame at Bernanke's feet. Dr. Paul has pointed out that the mess we are in is an accumulation of trying to centrally plan an economy. I've never heard Dr. Paul blame a specific Fed Chairman by name. Instead he challenges the institution itself.

Greenspan On A Possible Recession

ChrisR — Fri, 14 Dec 2007 01:41:00 GMT

Alan Greenspan gave an interview to NPR News' Morning Edition. Here is an excerpt (via AP):

Former Federal Reserve Chairman Alan Greenspan says the odds the U.S. will fall into a recession are "clearly rising"...
He said he felt this way because of the slowing pace of growth. "We are getting close to stall speed," he said. "We are far more vulnerable at levels where growth is so slow than we would be otherwise," he added. "Indeed, it's like someone who has an immune system that's not working very well is subject to all sorts of diseases and the economy at this lever of growth is subject to all sorts of shocks."

Mr. Greenspan's immune system analogy implies that the economy is healthy during the boom...that the economy is working well during the boom.

This is not true.

For it is during the boom that damage is being done. Malinvestment occurs during the boom.

Mises wrote, "The boom produces impoverishment." By this, he meant a boom created via the inflation of the money supply. With sound money, a boom in one particular industry would not be cause for alarm for the entire economy.

A credit-induced boom is not the healthy state of an economy, and recession is not a disease. The recession is the cure; the return to a healthy state of affairs.

Love of Liberty : greenspan

Is it Greenspan's Fault?

Greenspan On A Possible Recession