last summer 2001, I wrote a letter to editor to Krugman
Krugman has been praising Greeny for years
he had a very complimentary editorial syndicated
I disagreed with his points heartily, and wrote this
Letters to the Editor
Pittsburgh Post-Gazette
35 Blvd of the Allies
Pittsburgh, PA 15222 Re: Krugman article on Greenspan (9/3/2001)
The Krugman article depicting Alan Greenspan as the “Atlas” carrying the world’s burden points out the misguided portrayal and distorted role that our central bankers have assumed in recent years. The essence of the capitalist system is to permit equilibrium-based pricing in a full spectrum of markets. The professor neglects to touch on the unjustly venerated chairman’s role. He helped to create a problem, exacerbated it, and now is asked to fix it. “It” is a bubble. Why not resign? The stock market would rejoice.
I contend that Greenspan has exercised poor judgment in flooding the system with excessive money supply for five years ending in 1999 (anticipating Y2K snafus that never appeared), in justifying high equity valuations as late as March of 2000 (connecting instant information flow to reduced risk), in permitting an inverted yield curve throughout the entire autumn of 2000 (at its worst, Fed Funds rate was 250 bpt above the 3-month TBill yield). Now he is to be our savior? The author correctly labels the current picture as dismal, with intellectual confusion, narrow-minded officials, and sheer fiscal folly. But he misses the critical issue altogether, as most economists do.
The Federal Reserve has unchecked powers, and has used them recklessly. No, it is not paralyzed to react to the present severe stall caused by overcapacity. Just the opposite. Its monetary powers extend dangerously beyond what founding fathers intended. Just as it lurched on the side of tight money in 2000, it now is likely to stagger on the side of easy money in 2001 and next year. We must not rely on this institution to manage our economy. It has never been equal to the task as it overreacts to most conditions. The ultimate incongruity is the near deification of Greenspan during the expansion from 1994 to 1999. His errant genius was to sanction monetary policy being dictated by the bond market, and not to override it as brisk growth and low unemployment frightened most economists into seeing inflationary warnings. The bond market correctly cast such concerns aside, as well as the naïve link between low unemployment and inflation. Mere citizens and too many Congressional leaders confuse his eloquence with competence, while overlooking his contempt for accountability.
Mr. Greenspan and the Federal Reserve do not act as Atlas, or any other savior to our wonderful system of commerce and trade. They are threats to its equilibrium and effectiveness. They have fought a ghost of inflation for years, and produced a deflationary economic environment that might prove difficult to contain. Few people identify the parallel between this august body and the Communist Politburo. Those unschooled Soviet elders attempted to manage and control an economy, while embracing heretical principles. Attempts toward a controlled economy stand as the antithesis to a free enterprise system. The bond market should be empowered to dictate short-term monetary policy. It now calls for still lower rates, which should unwind the inflated US dollar (another consequence of high rates) which undermines our exports. Taxpayers, investors, and captains of industry are reluctant riders on a poorly planned and operated roller coaster.
Jim XXX, PhD Statistics |
