The Federal Reserve Board is having its annual retreat at Jackson Hole, Wyoming and the agenda this year is devoted to a retrospective of Greenspan's 18-year tenure as Fed chairman. The world has not seen a greater display of obsequiousness since the death of Leonid Brezhnev. An economist whom I used to respect even called him the greatest central banker in history . . .

Let's get a few facts on record:

1) Mr. Greenspan ignored the stock bubble. . . . decided that it wasn't his job to do anything about the creation of $10 trillion in bubble wealth and the resulting economic distortions. . . . The tens of millions of people who saw much of their retirement savings disappear in the crash are just out of luck, as are the pension funds that are now insolvent . . .

. . .

2) Mr. Greenspan promoted the housing bubble. . . . like the alcoholic who gets over one hangover by starting on the next, Greenspan's tool for getting out of the recession created by the collapse of the stock bubble was to promote a bubble in the housing market. . . .

When the housing bubble bursts, we will see the loss of $5 trillion in housing bubble wealth. . . . Tens of millions of people will be in for a rude shock . . . this will destroy their plans for a comfortable retirement.

The economic fallout will also be enormous. . . . You will see a huge falloff in consumption . . . The resulting recession may well be worse than the 1981-82 slump.

For extra fun, watch for the collapse of the secondary mortgage market . . . think S&L bailout, think $400-$600 billion in federal spending.

But Baker also agrees with FT that:

In 1995 and 1996 he lowered interest rates and kept them low. This allowed the unemployment rate to fall below the 6.0 percent level that the vast majority of economists considered a floor. . . .

The decision . . .  gave millions of people jobs. . . . disproportionately benefits those who are most disadvantaged, especially African American and Hispanic workers. . . . allowed for the first sustained growth in real wages for most of the country's workers since the early seventies. . . .

There is a bit of a contradiction here, I think, since, as Jerome argues, the low interest rates helped to make the stock bubble possible in the first place, and the bubble itself contributed to faster growth and low unemployment, making the 1990s boom unsustainable in the long run.

Baker argues, though, that Greenspan had an option other than raising interest rates:

The proper remedy for the bubble was actually very simple - talk. If Greenspan used his Congressional testimony and other public speaking opportunities to lay out the case for the bubble, there is little doubt that it would have deflated long before it reached such outlandish proportions.

Is this true? Is it possible to jawbone our way out of financial bubbles?

If not, is there any hope of creating a sustainable full employment economy without blowing bubbles? How do we square this circle?