While Brad DeLong is marvelling at the cell phone reception in Wyoming, and Mark Thoma and Dave Altig analyse various Jackson Hole papers, Dean Baker provides five reasons he was glad not to be invited to the Greenspanfest '05:
Let’s get a few facts on record:
1) Mr. Greenspan ignored the stock bubble.
2) Mr. Greenspan promoted the housing bubble.
3) The 1990-91 recession, and the slow recovery, were largely due to Greenspan’s policy errors.
4) I would also add to the indictment his scare stories on Social Security.
5) Finally, he did not tell the truth when he endorsed President Bush’s tax cut in 2001.
The post explains each of these 'indictments'. But Baker ends on a positive note, praising Alan Greenspan for lowering interest rates in the mid-1990s, and for not raising them as the unemployment rate fell "below the 6.0 percent level that the vast majority of economists considered a floor":
In allowing the unemployment rate to fall, he had to overcome the strong objections of Lawrence Meyers and Janet Yellen, two Clinton appointees to the Fed, who insisted that Greenspan should raise rates. The decision to allow the unemployment rate to fall to levels that most economists thought would trigger inflation gave millions of people jobs. Low unemployment disproportionately benefits those who are most disadvantaged, especially African American and Hispanic workers.
...We will benefit from this decision for years to come, since it set a new benchmark... The unemployment rate fell to 4.0 percent and we never saw the inflation they claimed would result. They were WRONG, and the country benefited hugely because Alan Greenspan didn’t listen to them
Sometimes discretion rather than rule-based monetary policy can be a good thing.
UPDATE: Brad DeLong takes issue with Dean in a post entitled Dean Baker Is Not an Alan Greenspan-Worshipper. After quoting Dean's piece at length, he remarks:
I think Dean Baker understates how big a win Greenspan's decision to go for growth in 1995-1996 was. I agree with Dean's criticism (5): Greenspan did not understand how much damage the Bush administration was going to do to America's long-term fiscal stability, and should have worked much harder to aid the deficit-hawk wing of the Bush administration.
(1) and (2) are, I think, harder questions. Dean Baker wants Alan Greenspan to have taken on the role of investment adviser to America - telling Americans when assets are overvalued. Alan Greenspan would say that that is not his role, and that he's not very good at that role: he thought that stocks were overvalued in December of 1996, and high-tech stocks now - long after the end of the dot-com bubble - are twice what they were then. I don't think that it was as simple as "talk."
...Where I would criticize Greenspan is in his failure to use his regulatory authority to brake some of the enthusiasm for first high-tech stocks and then housing. ...that wasn't done.
But my thoughts critical of Greenspan - except in fiscal policy - are unformed. I think that of the three kinds of policy - monetary, fiscal, and financial asset - that Greenspan was concerned with, monetary policy was most important. And Greenspan has done a masterly job at monetary policy.
In the comments to that post, Dean Baker has posted a long reply. Here's a key part of it (though I'd urge interested readers to go over and read the whole thing):
First, just to clear the battle field, Brad tells us that Alan Greenspan would say that it is not his role to play investment advisor. Actually, he would have trouble saying this with a straight face. Alan Greenspan advised homebuyers to take out adjustable rate mortgages back in the summer of 2003, when fixed rate mortgages were near a 50-year low. So Alan Greenspan has not hesitated to give investment advice when he thought it appropriate.
More concretely, the question is what advice I would have him give. I would settle for the basic information that allowed him to reach the judgment that the stock market was experiencing a bubble in 1996 (or even more in 1998-2000), or more recently that the housing market currently faces a bubble.
This information isn’t a secret. The basic point is that once price to earnings ratios climb substantially above normal levels (as they had by 1996), it is impossible for the stock market to sustain normal returns, unless profit growth proves to be far more rapid than most analysts (e.g. CBO, OMB, the Fed) project. ...This means that:
1) either investors in the stock market must be willing to accept much lower than normal returns, or
2) they must anticipate far more rapid profit growth than virtually all economic analysts.If Greenspan had used his congressional testimonies and other public speaking opportunities to make these points, he would have forced every investment fund manager in the country to address these arguments. Needless to say, they had no plausible response.
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