by Drew J Jones
Fri Dec 9th, 2005 at 04:00:29 PM EST
If I hear anymore glorifying of Alan Greenspan, I think I'm going to break something. For weeks, even months, now, the US press has been speaking of Greenspan as though he were the God of the Anti-Inflationist Movement -- of how the now-soon-to-be-ex-Fed Chairman "broke the back" of inflation in America, knowing damn well that it was Paul Volcker, whose contraction of the money supply in 1979 led to a deep but probably-necessary resession, who killed our double-digit inflation rates.
Volcker, not Greenspan, cut inflation from roughly 12% to roughly 3%, and his management of the monetary brake and pedal allowed the US economy to rapidly recover -- contrary to what the Reaganites will tell you, which is that it was Reagan's idiotic tax cuts that brought the recovery. Not so.
It took a heavy recession and the highest unemployment levels since the Great Depression, but Volcker's commitment to serious and responsible Keynesian monetary policy allowed the true maestro to bring the United States back to solid ground. The only thing America owes Alan Greenspan is a one-way ticket out of Washington and a thank you for not speaking clearly enough to scare the living shit out of Wall Street. And I'm glad Foreign Policy is pointing this out.
A few central banks which have produced lower inflation rates than Greenspan's Fed include the UK, the eurozone, and Australia, among others. Foreign Policy points out that, since 1979, inflation has fallen from double-digits to roughly 4% today:
During Greenspan's 17-year era, inflation slowed further to 2.5 percent per year. But 80 percent of the drop in inflation occurred under Volcker's stewardship at the Fed. (Emphasis is mine.)
Greenspan met with reasonable success in stabilizing the US economy after the dot-com bubble, but the price of this has been a stunning housing bubble in, financially, America's most important cities. Whether the housing bubble will prove extremely painful, or whether the US can once again achieve the "soft landing" that Greenspan is so famous for, is anybody's guess. One thing is for sure: Household debt has risen much faster than economic growth, and something's got to give.
After demanding a massive reduction in the deficit from Bill Clinton, Greenspan was strangely silent on the deficits run by George W. Bush, even going so far as to make the insane argument in 2001 that tax cuts would be a good idea, as a way to avoid paying off the national debt too quickly. What the hell kind of argument is that? When a government has the opportunity to pay off its debts, it should take it. As the deficit exploded -- and every serious economist predicted it would -- Greenspan then, after Bush's reelection, decided to support Social Security privatization, which would've transformed the deficit from a problem, at about 5% of GDP, to a catastrophe, with the federal government borrowing in excess of $10 trillion dollars over the next 45 years. And that's borrowing only for Social Security -- not including the day-to-day deficit spending of the White House and Republican Congress.
This is not to say that Greenspan is not a smart economist, or that he hasn't performed well. His work to provide the Clinton administration with some cover during the Tequilla Crisis in Mexico was admirable. He made some progress in furthering the cause of the Volcker Fed. But Alan Greenspan is no maestro and has not earned the fame and glory being dumped upon him by the press.
Here's hoping Greenspan enjoys his retirement. And that Ben Bernanke avoids making the same mistakes.