A long piece on Greenspan appears in today's New York Times, The Doctrine Was Not to Have One, by Edmund L Andrews. The author maintains that as Alan Greenspan nears the end of his 18-year tenure, the Fed Chairman "is leaving a brilliant record but a murky legend".
Here's what Andrews has to say on Greenspan's record:
Despite numerous economic shocks and financial excesses, unemployment and inflation are both lower now than many economists considered possible when Mr. Greenspan took office in 1987. ...The core rate of inflation has edged down to about 2 percent from 4 percent when he took office. Unemployment has averaged 5.5 percent over the last 18 years, compared with nearly 7 percent in the previous 18 years, and it is now down to about 5 percent.
...But for all his triumphs, Mr. Greenspan also presided over a stock market bubble that burst and, in helping minimize the damage from that fiasco, laid the groundwork for the housing boom - and potential bust - that followed. Moreover, the United States has run up heavy foreign debt partly because the Federal Reserve drove interest rates so low that Americans borrowed more and saved less.
As for that "murky legacy", it's because of the discretionary rather than rules-based approach which Greenspan followed:
..whoever moves into his spacious office on Constitution Avenue early next year faces a near-impossible task in replicating Mr. Greenspan's success in managing monetary policy. That is because Mr. Greenspan abhorred rules, was skeptical about economic models and jettisoned practices that were enshrined by the likes of Paul A. Volcker, his predecessor, and Milton Friedman, a winner of the Nobel in economic science. If Mr. Greenspan stood for anything, it was flexibility and the freedom from dogma.
"The Greenspan standard has for the most part meant what Greenspan wanted to do," said Alan S. Blinder, a professor of economics at Princeton and a former vice chairman of the Federal Reserve.
...Critics of Mr. Greenspan contend that he has relied too heavily on his own judgment and not enough on consistent principles. "We've moved further away from a rules-based system," said Brian S. Wesbury, chief investment strategist at Claymore Advisers. "We have a Greenspan standard, but we don't have any kind of a Fed standard."
If the Fed had adopted an explicit numerical inflation target - something that many other central banks use but that Mr. Greenspan has rejected as too restrictive - Mr. Wesbury contended that the Fed might have avoided much of the volatility since 2000. ...Other analysts contend that Mr. Greenspan's judgment has generally been correct, but that the Fed cannot afford to rely on the individual judgment of future chairmen.
For other recent commentaries, see my post Glorifying Greenspan.
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