For Alan Greenspan, Redemption, and Wisdom, Remain Elusive
Thursday 14 April 2011
by: Paul Krugman, Krugman & Co.
Truthout
Some people have asked me for reactions to a piece by Alan Greenspan in the latest edition of International Finance on how President Obama’s activism is preventing economic recovery.
I could go through the weak reasoning, the shoddy econometrics that ignores a large literature on business investment and ignores simultaneity problems. But never mind; just consider the tone.
“A basic premise of competitive markets, especially in finance, is that company management can effectively manage almost any set of complex risks. The recent crisis has cast doubt on this premise,” Mr. Greenspan writes. “But the presumption that intervention can substitute for market flaws, engendered by the foibles of human nature, is itself highly doubtful. Much intervention turns out to hobble markets rather than enhancing them.”
Mr. Greenspan, who was chairman of the Federal Reserve from 1987 to 2006, writes in characteristic form: Other people may have their models, but he’s the wise oracle who knows the deep mysteries of human behavior, who can discern patterns based on his ineffable knowledge of economic psychology and history.
Sorry, but he doesn’t get to do that anymore. 2011 is not 2006. Mr. Greenspan is an ex-maestro. His reputation is pushing up the daisies, it has gone to meet its maker, it has joined the choir invisible. He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, and denied not only that there was a national housing bubble, but that such a bubble was even possible.
(More here.)
by: Paul Krugman, Krugman & Co.
Truthout
Some people have asked me for reactions to a piece by Alan Greenspan in the latest edition of International Finance on how President Obama’s activism is preventing economic recovery.
I could go through the weak reasoning, the shoddy econometrics that ignores a large literature on business investment and ignores simultaneity problems. But never mind; just consider the tone.
“A basic premise of competitive markets, especially in finance, is that company management can effectively manage almost any set of complex risks. The recent crisis has cast doubt on this premise,” Mr. Greenspan writes. “But the presumption that intervention can substitute for market flaws, engendered by the foibles of human nature, is itself highly doubtful. Much intervention turns out to hobble markets rather than enhancing them.”
Mr. Greenspan, who was chairman of the Federal Reserve from 1987 to 2006, writes in characteristic form: Other people may have their models, but he’s the wise oracle who knows the deep mysteries of human behavior, who can discern patterns based on his ineffable knowledge of economic psychology and history.
Sorry, but he doesn’t get to do that anymore. 2011 is not 2006. Mr. Greenspan is an ex-maestro. His reputation is pushing up the daisies, it has gone to meet its maker, it has joined the choir invisible. He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, and denied not only that there was a national housing bubble, but that such a bubble was even possible.
(More here.)
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