Sunday, May 01, 2005

Greenspan Became A Keynesian

An economist in St. Paul doesn't mince words when describing the Fed chiefs' self delusion. "Greenspan has abandoned what seemed to be his long-held belief in monetarism and limited government. He drank the Kool-Aid of Keynesian gas-and-brake-pedal stomping. We are returning to the 1970s."

"Greenspan was expected to follow his predecessor's aversion to jockeying the money supply in response to economic twitches. Perhaps he did for a while. But cautious monetarism did not last long. By the 1990s, his foot alternated between the monetary gas and brake pedals like any Keynesian. Economy growing after 1991 recession? Double the Fed Funds target to 6 percent. A little slowing in late 1995? Back to 4.75 percent. Stock market bubble still bubbling? Back up to 6.5. Too much? Down all the way to 1 percent."

"Try to bind up all economic wounds with the money supply and one will not only fail, but will also infect the patient with the septicemia of inflation and cause inflationary flare-ups at the worst possible times. The long-run outcome will be worse than if one had exercised realistic caution from the outset." Ayn Rand was right about AG, after all.

3 Comments:

At 10:16 AM, Blogger Ben Jones said...

If you copy/paste the link into google, it should get you into the article.

 
At 11:15 AM, Blogger John Law said...

Greenspan's gold and economic freedom essay is great. while I would count myself at least a bit apart of the "welfare statist" movement, I think he brings up a lot of great points. I think we've moved more from welfare statism being the main enemy of the gold standard to corporatism and pols just spending to get re-elected.

 
At 10:04 PM, Anonymous dryfly said...

Controlling the economy is a noble goal... and I'm sure Greespan has good intensions. But as we all know the road to Hell is paved with good intensions.

On the other hand, the problem with the Friedman pure monetarists is two fold:

(1) They are almost all academics and haven't tried to do mange the money supply. Like arm chair quarterbacking... looks easy from the ivory tower.

(2) There are all these new forms of money out there... or rather so many new ways to monetarize assets... that I'm not sure the FED has much control anymore... like standing out in a field and screaming.

Einstein once said "The trouble with Chemistry is its too hard for Chemists..." I think the same can be said about Economics.

 

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