Former Fed Chairman Alan Greenspan declared today that he had made a mistake (see the New York Times article). One would expect Greenspan to admit that his monetary policy following the 2000 dotcom bubble had been way too expansive and that the housing market suffered from it as a result.
Well, no. According to the NYT, Greenspan declared that the mistake he made was to trust that “free markets could regulate themselves without government oversight.” Greenspan admitted that he was “partially wrong in not having tried to regulate the market for credit-default swaps.” He has found a flaw in the “free market ideology” as the NYT put it, and is now in “a state of shocked disbelief.”
We also are in a state of shocked disbelief. Or perhaps not. Instead of blaming himself for his monetary policy and admitting once and for all that central banking is not the best monetary system available (he actually admitted that the economy is too complex to be forecasted by Fed experts), he blamed it on the free market. Greenspan true mistake is to absolve himself from all responsibility by saying that he had faith in the free market system and that that system abandoned him (i.e. it had a flaw).
But the more fundamental mistake Greenspan made was 50 years ago when he abandoned his position on the role of the gold standard. We shouldn’t be surprised that Greenspan is trying to deflect criticism by minimizing his errors and poor judgments as the Fed Chairman. The scholars who will write the second edition of “A Monetary History of the United-States 1961-2040” will surely find a different story.
Addendum:
As Pete Boettke mentioned it in the comment section, read Murray Rothbard's comments upon the nomination of Alan Greenspan at the Fed in 1987. Rothbard saw all this coming a long time ago. He had it right.
Frederic,
I bet his next appearnace before congress will be in handcuffs, orange jumpsuit, and a bullet proof vest.
ED
Posted by: Ed Weick | October 23, 2008 at 07:15 PM
Turns out that on this issue, as on so many other issues in political economy, Murray Rothbard had it right. See http://mises.org/story/359
Pete
Posted by: Peter Boettke | October 24, 2008 at 08:06 AM
Wow, that Rothbard piece was shockingly dead-on. Who says Austrians don't predict? Thanks, Pete!
Posted by: Ivan Pongracic, Jr. | October 24, 2008 at 10:28 AM
It truly amazes me how rapidly crazy rothbard - a lousy thinker - goes from being a pariah with the GMU austrian crowd to being a guru!!
Posted by: Richard | October 24, 2008 at 04:09 PM
Crazy Rothbard was both crazy and brilliant. I've said on this very blog that the first 65 pages of MES is the best explanation of the derivation of supply and demand curves I know. And I'm using his AGD chapter on Hoover in my American Economic History class this semester.
Why does it have to be an either/or? Sometimes he was crazy (in the last decade of his life, far more often), sometimes he was brilliant.
Posted by: Steve Horwitz | October 24, 2008 at 06:05 PM