Alan Greenspan “might well be the best central banker who ever lived.” That statement, from the August 26 New York Times, reflects the attitude of even most Greenspan critics – except for the Times. The Times looked back on the Greenspan tenure as Federal Reserve Chairman by emphasizing a threatened “housing bubble” that Greenspan doesn’t even believe in. Reporter Edmund L. Andrews characterized a Fed chairman washing his hands of a looming threat. If “housing prices do turn out to be a bubble that bursts,” said Andrews, “Mr. Greenspan will no longer be around to take the blame – or clean up the mess.” The article, “The Doctrine Was Not to Have One,” described Greenspan as a classic free market supporter who has been wildly successful in his job. Rather than emphasize that, Andrews undercut him as a man “leaving a brilliant record but a murky legacy.” The problem? The fact that it will be difficult for a successor who “faces a near-impossible task in replicating Mr.Greenspan’s success in managing monetary policy,” said Andrews. Many of the more than 2,000 words were devoted to talk of a looming housing bubble. But a quick search of the Times’ own archive shows that Greenspan disagrees with that entire premise. In a May 31 piece, he explained the situation. “Mr. Greenspan acknowledged that housing prices showed signs of ‘froth.’ Though he remained skeptical about the existence of a nationwide housing bubble, he said there were signs of ‘lots of little bubbles’ in particular local markets.” Despite that, Andrews hammered home “the potential bubble in housing prices today.” In an article that was far from complimentary, he added: “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.” Buried in the piece were a few key points about the Greenspan tenure:
- Reagan success: Greenspan’s success can be traced back to Ronald Reagan, who nominated him in 1987 – 18 years ago.
- Atlas Shrugged: According to Andrews, Greenspan is “a devout believer in free markets and at one time a disciple of Ayn Rand, the libertarian philosopher.” The story made no attempt to link those points with Greenspan’s storied success.
- Strong economy: More from Andrews on the excellent Greenspan years: “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.”
- Krugman chaos: Readers of Times’ “economist” Paul Krugman will recognize the article’s major point from a May 27 Krugman column. That column quoted various pro-bubble advocates including one who “predicted that the Federal Reserve would simply replace one bubble with another.” According to Krugman, “That's why it's so ominous to see signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble.” Now here’s Andrews from the latest article: “The biggest risk for his successor could turn out to be a collapse in housing prices after the frenetic run-up that has resulted in part from the Fed’s policy of keeping interest rates so low.”
- If only…: Even though Greenspan has enjoyed great success, the story dwelled on critics who “contend that he has relied too heavily on his own judgment and not enough on consistent principles.” Andrews then concocted a “what if” scenario that one critic said “that the Fed might have avoided much of the volatility since 2000.”
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