January 29, 2006

GOING THE WAY OF STUDIO 54, FINALLY:

Greenspan's lasting legacy (Patrice Hill, January 29, 2006, THE WASHINGTON TIMES)

Federal Reserve Chairman Alan Greenspan leaves office this week with a glowing legacy, having presided for 18 years over an extraordinary period of economic progress and stability in the United States.

That his tenure shouldn't have survived the '90s is amply borne out by the 4th Quarter growth figure which shows he's stalled out the economy for the third time, by pushing real interest rates far beyond what's tenable in a fight against an inflation demon which exists only in his night terrors of the '70s. Fortunately Volcker and Reagan left him too strong a ship for him to sink it, though he has becalmed it too often.

Posted by Orrin Judd at January 29, 2006 8:17 AM
Comments

News flash: There were recessions before Greenspan.
And they were a lot more frequent and worse. The last recession weas so mild that the NBER and the BEA can't even agree on whether it was actually a recession, and they keep changing their minds about it.

Posted by: Tom at January 29, 2006 1:04 PM

Tom:

Yes, there were actually no recessions under Greenspan. The problem is that he caused the two past slowdown, and perhaps a third unless bernanke stops the raising of rates, for no reason.

Posted by: oj at January 29, 2006 1:09 PM

Greenspan has been paranoid about inflation, but since there's a huge swathe of one political party out there that would love to reimpose Carternomics on the nation, I don't begrudge Bill Clinton's maintaining him in office, given what so many Democrats would have preferred (Fed Chairman Paul Krugman, anyone?).

Posted by: John at January 29, 2006 3:25 PM

To say Greenspan caused the slowdowns in the past few decades is, um, debatable at best. Market economies also have slowdowns in the absence of monetary policy, not just recessions.

BTW, one interpretation of the recent increases in the FF rate is that the Fed - that's the entire FOMC, not just the G-man, OJ - is trying to re-normalize it so they can actually lower it again if there's ever a real recession. If it were at 1%, OJ, what would they do if a recession struck?

Posted by: Tom at January 29, 2006 3:51 PM

Yes, as you say they're keeping rates artificially high which is predictably causing a slowdown. Rates would just go negative in a recession as they have in Japan.

Posted by: oj at January 29, 2006 3:59 PM

They're not keeping rates articficially high; they're putting them in a more normal range. 1% was artificially low, way low.

Rates in Japan have gone only slightly negative; they can't go more than a fraction of a % negative - as far as I've ever heard - because then lenders would do better by just holding cash. The only reason rates went even a little negative in Japan was that Japanese Treasury debt is a convenient way to park a lot of money. There are limits to that convenience.

But what seriously baffles me about your position on Greenspan is the notion that we've had poor economic performance on his watch. We've had great economic performance; just compare his reign with that of any of his prededessors, or the era before the Fed.

Posted by: Tom at January 29, 2006 7:08 PM

Tom:

1% was artificially high too.

Yes, he gets credit for not biffing too badly, but the '91 and '01 slowdowns were unnecessary and a function of his raising to fight an inflation that only existed in his head. He may now have done the same a third time.

Posted by: oj at January 29, 2006 7:54 PM

Instinctively, I agree with you OJ. The Wall Street Journal editorial board does not. Yesterday's Weekend Journal editorial attributed the slowdown to dipping auto sales and lower government spending (really?) and stated that interest rates are right where they are supposed to be since inflation rose in the last reading. Those guys get on my nerves anyway, but can you really tell me why they're wrong. Like I said, I instinctively agree with your position, but instinct is not based in fact ... I'd like to understand this issue. Can you do a post or link to a special page that lays out your "Studio 54 theory"?

Posted by: greg at January 30, 2006 10:15 AM

"1% was artificially high too."

You've finally completely slipped your leash.

Posted by: Tom at January 30, 2006 10:48 AM
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