Actually Dr. Alan Greenspan
isn't little; he towers over Queen Elizabeth as she turns him into an honorary
Knight Commander of the British Empire. In fact I would be lying if I didn't admit that
this man would probably cause my knees to genuflect if he passed near me, but
that's normal. I'm nobody.
As I think back to when I was an infant nobody, I only remember believing in one god: it was my father -- another economist as it turns out, but of lesser repute. His name was Edward C. Harwood, founder of the American Institute for Economic Research and one of the first to incriminate inflation as among the worst evils of economic time.
As I grew older, my father descended to his rightful place, hovering about a head or two above the rest of us. Cdr. Greenspan, on the other hand, has such a skyscraping resume that no one would dare claim he doesn't deserve his godlike perch. He has acquired every degree and state honor there is, in spite of what the hyperbolic Brit Christopher Hitchens describes as a "mousy, bespectacled accountant" look. Caroline Frost of the BBC states that he represents "the public face of American capitalism," and that his "every utterance and smile can change spreadsheets across the world." To top it off, he's an accomplished Juilliard clarinetist and saxophonist who considered dropping it all and playing professionally. Good grief.
But in my opinion, and in spite of all of this unction, there seems to be a fly in the ointment. I'm wondering if the Commander isn't human after all. He used to be our monetary lifeguard, plunging into the Federal Reserve ocean to save us from the Inflation Dragon seething beneath dark, churning fiat money. Upon arriving at the Fed he threw himself into battle against its natural tendency to want to turn on the inflationary printing press, and was immediately "assailed as a zealot willing to strangle economic growth in pursuit of a chimerical goal of zero inflation," according to Bob Woodward. In other words, he was a man after my dad's heart.
Back then, in a 1996 speech before the American Enterprise Institute (AEI), he had the courage to state the following economic wisdom:
"I wish I could say that there is a bound volume of immutable instructions on my desk on how effectively to implement policy to achieve our goals of maximum employment, sustainable economic growth, and price stability. Instead, ... there is, regrettably, no simple model of the American economy that can effectively explain the levels of output, employment, and inflation. In principle, there may be some unbelievably complex set of equations that does that. But we have not been able to find them, and do not believe anyone else has either."
Now there is someone worth
admiring. He's right: no one today can claim to have found any magical
mathematical formulas, and it takes real guts for a scientist of his stature to
admit it. Just as an illustration, I found a very accessible article on the subject
where one has only to look at the number of contradictory opinions linked at
the bottom to realize that no consensus exists on the subject even among
But over time, he has changed his tune. Somewhere along the story line, my lifeguard seems to have turned into a kind of tired Arthur Miller Narcissus, increasingly entranced by his own reflection among the crests of speculative bubbles and the valleys of soft spots. In 2002, in a speech before the same AEI, he began to echo what sounded to me like the old monetarist voodoo incantations to "do something:"
"... [A] major objective of the recent heightened level of scrutiny is to ensure that any latent deflationary pressures are appropriately addressed well before they became a problem. ... there are some well-founded reasons to presume that deflation is more of a threat to economic growth than is inflation..."
Does this mean that he has
acquiesced to some of his colleagues and has now decided it is okay to
"address" the problem, or in other words to allow the presses to
turn, somehow hoping to "prevent" deflation? If you ask me, deflation
could be the unfortunate but inevitable hangover resulting from a slowly
building, Fed encouraged, inflationary binge.
Whether or not I'm correct, things might still work themselves out in the Fed Board's favor. Inflation may mysteriously appear to acquiesce somewhere between a bloodsucking 1 and a tape-wormish 3 percent, and the menacing deflationary valleys and speculative bubbles may just blip and disappear. In any case, I do hope the All-Mighty Market spares Cdr. Greenspan any personal embarrassment, for otherwise he may regret the day he decided to quit the Henry Jerome orchestra.
The author is a TCS contributor.