前美联储理事评格林斯潘遗产：正确与错误并存

Obviously, you you know you knew Alan Greenspan. You had worked with him, and then you went to join the Fed shortly after he served. It's an it's certainly an era steering us through unprecedented peacetime economic expansion and then recast perhaps in the two thousand eight crisis. How should we view Allen Greenspan's legacy?

Well, I think he was someone who contributed enormously to economic growth in The US. But, obviously, there's also, the issue of today also contribute a bit to some of the risk taking that led to the the global financial crisis. He got many calls right. For example, he saw the productivity boom in the late nineteen nineties and held back on on raising interest rates, probably exposed a very wise move that helped employment to grow more than it otherwise would have. And so as with anyone who is gonna be in policy making for as many years as as he was in, many, many positives. And, unfortunately, one, one negative that's that's there that, that needs to be acknowledged. That's, the the housing crisis essentially. A lot of people argue that he led to, that he helped build leverage in the system that, you know, ended up in the great financial crisis. Is that a fair characterization, you think?

Because he did, give us the great moderation as Ben Bernanke called it. Well, one of the lessons that he took from, let's say, previous crises when when he was there during '9 eleven, if you look at the intro to his, autobiography, The Age of Turbulence, he talks about how the lesson that he took from that was how resilient The US economy was. His view was that a few words comforting words from from him and from the Fed and maybe judicious interest rate cut here or there could get the economy back on track even if there was a big shock. I think his view was primarily that the Fed could clean up after a a crisis fairly quickly, fairly easily. And if the Fed tightened too much early on, it strangled the ability to grow, to innovate, and move forward. So he made that trade off to say, let's have many, many years of of growth and take perhaps a little bit more of a risk of of some of that that downside. But his view was that the Fed easily could could clean that up. Obviously, when I was there, we did try to clean some of that up, but it probably had a bigger bigger cost than than I think he would have anticipated. One of one of the other big impacts that Allen Greenspan made was before him this veil of secrecy that the Fed operated, and Allen Greenspan brought into the era of the Fed issuing a statement after a policy decision was made. Randy, it feels like we are yet again putting under a microscope what it means, what Fed communication means at this moment with the new Fed chair, Walsh. Just how much has Fed communication evolved, and how much do you expect it to evolve yet again going forward?

It was amazing. It is hard to believe that the Fed didn't talk. You really knew nothing about what the Fed was doing. There weren't, constant, chatter on on on on your program and other other programs, from, from Fed officials and former Fed officials. It was really a a very quiet place. As you said, Greenspan introduced the first statements and then developing those those statements further. What's very interesting is that Kevin Morris, who served on the Fed at the same time I did, wants to move back to kind of the early part of the Greenspan era where there was a much more simple communication, less, forward guidance. Although Greenspan did, give some some forward guidance, I think Kevin wants to go back even further, further back to something more plain vanilla beyond that. And I think he thinks that that will help to to push he and his colleagues to think in the big picture terms rather than responding every bump and wiggle in the data, every number that comes out, try to sit back and have a bigger picture view of what does AI mean, what does, the war in in Iran mean, what do supply shocks mean, and try to convey that big picture to the market rather than trying to comment in every particular number that comes out. Because the Fed needs to look through that, needs to see what the bigger picture trends are, and needs to have a stronger view. So I think that's how things are likely to evolve going, going forward. Randy, how do how do you talk to your students about the Greenspan era and this whole kind of Austrian school, Milton Friedman, Ayn Rand, vibe of libertarian economics where, you know, government intervention is seen as a bad thing, and Gold would would, impose discipline on governments and, you know, the whole sort of economic freedom tied to political free freedom, this whole philosophy of Allen Greenspan. Yeah. It's very interesting that he started he he was very much influenced by by Ayn Rand, and and he talked about gold as as sort of the only sound sound money. When he was at the Fed, we didn't hear quite as much about that. I mean, he certainly was a a sound money person, but I don't think he thought that that gold was the only way to achieve that. And and I think, you know, he had a very strong view on the health of markets, the importance of markets, the importance of of competition, and and those shouldn't be forgotten. But also we know that sometimes things can get a little bit out of a little bit out of control, a little bit out of whack, and some of that is unintended consequences of regulation. So making sure you understand that, yes, there's a safety net that's there, but that safety net can have some unintended consequences that might not be so easy for the Fed to to clean up afterwards is something that I think is an important qualification that that comes in. He also talked about this a little bit in his testimony that he gave after the global financial crisis. He said there was a flaw in the system, and what he meant by that was that he thought that if people have their money on the line, they're gonna do full due diligence and make sure that money is is well allocated. Unfortunately, one of the things that we found out and certainly Allen Greenspan talked about in his testimony was that's not always the case. Sometimes people are not as careful as they should be. And if people are not being as careful as they should be, there's not the due diligence, and so things can bubbles can can arise, problems can arise that can lead to, things like the global financial crisis. It's something that his wife mentioned in the statement she gave when when Greenspan passed away that he was always honest in acknowledging his mistakes. Randy, you you also mentioned that part of the other part of Greenspan's legacy was allowing the economy to run hot in this nineteen nineties Internet era boom, even, you know, not hiking rates, and allowing unemployment to drop without without doing so. I wonder, is history any guide there to this period we're currently undergoing?

Well, it was different because inflation was much lower at that that point. We didn't have just in the last few years a high inflation coming into that. So I think that's the context is is very, important. But I do think there's an important lesson there that the Fed, once again, shouldn't be just focusing on just the short term movements of of some of these numbers, but think about the bigger picture. What are the key things that are gonna be driving the labor market?

What are the key things that are gonna be driving economic growth?And take those on on board and not overemphasize the short term numbers, but have a clear view on the bigger term, on the on the bigger picture. And, clearly, that's one of the things that Kevin has been been talking about.