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August 30, 2005

Mark Thoma Reads

He reads Ken Rogoff on the Greenspan succession:

Economist's View: Have No Fear, The Non-Activist Fed Will Still Be Here: Kenneth Rogoff of Harvard University and former chief economist at the International Monetary Fund shares his thoughts in The Financial Times on Greenspan’s days at the Fed. That he sees Greenspan as the Michael Jordan of central bankers gives you an idea of his view of Greenspan's tenure...

As Alan Greenspan’s fifth and final term as Federal Reserve chairman comes to a close in January next year, more and more people are asking the question: “What were the secrets of his extraordinary success and can he pass them on to his successor?”... [I]f one looks at how the science of monetary policy has evolved over the past two decades, there is cause for optimism.... Alan Greenspan is the Michael Jordan/Lance Armstrong/Garry Kasparov of modern-day central bankers.... [H]e took charge of a great team of economists and made them better.... The enormous prestige and respect he has brought to the job has, in turn, been a huge tool in recruitment and retention of top talent....

By and large, Fed policy is aimed at maintaining a stable inflation rate, except in the face of clearly discernable big shocks.... Some of Mr Greenspan’s most influential calls have come precisely from explaining how changing trends in productivity and globalisation were affecting the interest rates required to maintain price stability... The salient effects of the Fed’s stabilising strategy, and similar ones followed by most other leading central banks around the world, have been stunning. The risk premium on long-term interest rates is down sharply, helping fuel sustained growth and expansion.... One only has to look at countries such as Mexico and Brazil....

Paradoxically, then, the Greenspan Fed has succeeded by reducing the role of monetary policy, rather than by enhancing it....

And he reads about the Swedish welfare state:

Economist's View: What Inferiority Complex? The Swedish Welfare State : We don’t need no stinkin’ US style capitalism! Sweden tells Europe to hold its head high:

In defense of the welfare state, by Jonathan Power, International Herald Tribune: (Stockholm) The statistics had arrived on the Swedish prime minister's desk … It was good news. Goran Persson, now in his ninth year of office, told me that the growth rate for this year will be near 3 percent and next year more than 3 percent - enough, he said, to maintain Sweden's trajectory of the last decade, which was "above the average for the European Union" and, in particular, "as good as the Anglo-Saxons, Britain and the U.S."... This raised the first question - how does this self-confessed socialist state do it? What is the secret for success when Swedish taxes are the highest in the world and the welfare state is the country's single largest employer?... "If you have a free economy," explained the prime minister, "a highly educated work force, a very healthy people, very high productivity and a sound environment then you can create the critical size of resources to create good growth. "That has to be joined with adequate public financing of universities, research and development. As long as we are efficient and constantly challenging ourselves we continue to be productive. "Then if we produce successful growth, the government gets the public's support for high taxes. If the quality of the public sector is good, then a prosperous people will continue to vote for funding it."...

"Europe has a lack of confidence vis-à- vis the U.S.," he said. "The U.S. is competitive, but not as competitive as we think. We are too self-critical in Europe, even though we have a much better social system and in Sweden are just as productive. On unemployment, it is overlooked that the U.S. has approaching two million people in jail and out of the labor market."...

Posted by DeLong at August 30, 2005 03:05 PM