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March 11, 2005

How Good Is Alan Greenspan?

Marginal utility tries to evaluate Greenspan as a monetary policy maker:

Marginal Utility: Economic Evaluation of Alan Greenspan: Brad DeLong, trying to make sense of what he calls 'The Three Faces of Alan Greenspan,' distinguishes Greenspan 'the superb monetary policy technocrat' from Greenspan the Ayn Rand disciple and Greenspan the Republican team player. This is relatively kind compared to Josh Marshall, who opens a TPM post from earlier today with, 'It really is amazing that anyone takes Alan Greenspan seriously anymore,' though he notes that Greenspan's position remains 'sacrosanct' in polite political circles.

My thought for the evening is that there is no solid counterfactual underpinning Greenspan exceptionalism. It's not that he's done a bad job as monetary policy steward as such, though consider the financial imbalances over which he's presided and tell me that his final grade isn't Incomplete at the moment.

Rather, as Robert W. Fogel might suggest, the correct question is how has Greenspan done compared to the next best monetary policy technocrat? That standard, I would suggest, would substantially deflate the Greenspan myth.... It is not obvious that he has a unique endowment of monetary policy acumen. I'll suggest that a hypothetical Chairman Rubin, or even a shadow FOMC made up of very bright economics grad students with something like the FOMC's information set to work with, could have made more-or-less equally good monetary policy calls.

And, Chairman Rubin certainly would not have played an equivalent role in the Federal budget train wreck — even if his efforts couldn't have helped convince 1,000 more Floridians to vote for Gore in 2000.

All I can say is that seven times during Greenspan's career I have thought he was making a substantial monetary policy mistake:

  1. In late 1987 when he seemed to me to be expanding the money stock too fast.
  2. In 1991 when he seemed to me to be reducing interest rates too rapidly.
  3. In late 1993 when he seemed too slow to raise interest rates.
  4. In 1995-1997 when he seemed to be too eager to make a big bet on the reality of the new economy.
  5. In 1998 when he did not cut interest rates fast enough in response to East Asia, Russia, and LTCM.
  6. In 2000 when he did not cut interest rates fast enough in response to the NASDAQ crash.
  7. In 2002 when he did not resort to "nonstandard monetary policy measures" to boost aggregate demand.
  8. Today when he seems, to me at least, to be raising interest rates too fast.

On number (8), the jury is still out. On number (6), I was right. I'd claim that I was right on (7) as well, that his decisions were imprudent, and that we were just lucky. But otherwise... it seems clear to me that on (1) through (5) I was wrong. Greenspan does appear to have, if not a unique endowment of monetary policy acumen, lots more than I do.

Posted by DeLong at March 11, 2005 11:52 AM