In connection with the recent departure of Alan Greenspan, economist Scott Sumner will recall and discuss some of the actions and policies of this new central bank. He was without a doubt one of the greatest Fed presidents, perhaps the youngest. However, I value his behavior a little differently than many others, according to Sumner, continuing some of his controversial views:
The economist thinks that Greenspan did a great job during his time in office (that is, between 1987 and 2006). He helped create stable nominal GDP growth, but there is no reason to believe that he would have done better than Bernanke in 2008. According to Sumner, Greenspan’s general comments on monetary policy in 2008 and 2009 even indicate that he would be wrong, just as the head of the Fed did in those years. On the other hand, according to the economist, Greenspan is to blame for the financial crisis in 2008. gambling and a strained financial situation. Greenspan’s biggest mistake in this area was the rescue of the Long-Term Capital Management hedge fund in 1998. According to the economist, this contributed to the growing problem of moral hazard. According to the economist, it is too big to fail to enter this area of moral hazard. That is, the fact that some financial institutions are too big to fail, because their bankruptcy would cause huge losses in the whole economy. It is in their best interest to provide help from the government, which creates a moral hazard. These institutions may, because of such one of the government, tend to take risky steps with the fact that in the event of a rush they will realize profits. In the event of an accident, the government or the tax payer will cover the losses. Sumner continues with the fact that the years 1987 and 2006 should not be considered the Greenspan era, but the neo-Keynesian consensus era. It wasn’t just the Fed that understood the benefits of inflation tariffs, which became part of the overall thrust of economic policy. And he noted that the central bank was looking at how to target inflation using an approach similar to the Taylor rule. And this explains to a certain extent, because other developed countries also reached the same rate of inflation in this period as the United States. Sumner so well, in 1996 Greenspan spoke of an irrational day on the stock market. A few years later, this warning was perceived as a good harbinger of further development. According to the economist, in fact, Greenspan was obviously wrong, because stocks were not overvalued in any way in 1996. This is just one of many examples of how the human mind is pushed towards looking for bubbles where none actually exist. According to the economist, Greenspan’s greatest priority was his willingness to take out information contained in asset prices.