It is bothersome when a person passes himself off as co-director of economic research for a reputable publication, then writes an article without having done any research. It is appalling when the same "economist" writes a rant blaming a former policy leader for the entirety of the 2008 financial crisis, because he believes that this is what the general public wants to hear.
This is precisely what The Guardian’s economist Dean Baker, wrote on Monday. In Baker’s article, he misrepresents Alan Greenspan’s six decades of work for the United States. Our former Federal Reserve chief is by no means innocent as far as the financial crisis conversation goes, but he does not deserve the criticism being hoisted upon him by an armchair athlete in the wake of his new book, "The Map And The Territory."
Baker’s article insults the work of a lifelong economist, a man who had nearly four decades of economic consulting and research experience before becoming the chief of the Federal Reserve. When a man spends 40 years of his life surrounding himself with economic data, he has credibility. There was nobody more suited for the job of Federal Reserve Chief from the end of the 1980’s decade into the new millennium than Alan Greenspan.
For Baker to say that he refuses to read Greenspan’s work is ignorance. Insulting his interest in Ayn Rand is close-mindedness and a personal attack. Refusing to learn is pure ignorance. Refusing to hear the other side of an argument is egotism.
I have read Greenspan’s past book, "The Age of Turbulence," and I can say with an educated opinion that Greenspan made the right moves given the circumstances present to him. Greenspan did not always enforce easy money. At one point in Greenspan’s administration the federal overnight rate was 5.25 percent. Is that easy money, Mr. Baker?
Greenspan was tight-fisted in his policy-making when inflation was rising. To come down on Alan Greenspan for his easy money policy is to ignore our current situation of mega-easy money and zero-interest rates. Looking back on Greenspan’s policy-making, we had it rough, comparatively.
Baker also ignores that fact that Greenspan admonished the Bush administration against cutting taxes and raising spending, a polar-opposite practice to Clinton’s "pay-as-you-go" plan. Bush’s fiscal policy was completely illogical in retrospect and is responsible for trillions of dollars in lost economic productivity per year - the same lost productivity dollars that Baker postures to be solely at the behest of Alan Greenspan. Had Baker read Greenspan’s New York Times interview from 2007 [since he is certainly opposed to reading anything relevant to what he writes about] he’d know this. He’d know Greenspan was furious as George W. Bush’s eight-year frat party unraveled every bit of economic progress the Clinton administration created. In Greenspan’s interview, he had this to say of the Bush administration’s fiscal policy:
“Smaller government, lower spending, lower taxes, less regulation — they had the resources to do it, they had the knowledge to do it, they had the political majorities to do it. And they didn’t.”
Greenspan was responsible for monetary policy, not fiscal policy. The Federal Open Market Committee is not responsible for what Washington -- the president and Congress -- does with the federal budget, and it certainly is not responsible for the reckless lending on behalf of Countrywide Financial.
Greenspan was for smaller government, not smaller consciences.
What's more, Greenspan did not put the pens in the hands of shady Countrywide Financial agents six years ago and force them to make millions of bad loans to applicants that were either high-risk or very-high-risk. People with no moral compass put those pens in their hands. Baker’s rant is essentially blaming a pencil company for children using their pencils as weapons at school. Ticonderoga, the pencil company, didn’t tell the children to stab each other with their pencils, but this is how Baker’s logic works.
Greenspan’s theory on the modern financial crisis is that risk alone is not what causes havoc to our financial system. It is risk with leverage. A $20 hand at a craps table is not enough to bankrupt a person, but it is enough to lose him $20 as quickly as it can win him $20. However, if that person bets his entire house at the craps table, he is likely to lose it all. That is the principle behind financial derivatives. They are echoes of original risky instruments that magnify risk. They are dangerous, but Greenspan did not instruct the banks to bet 40 times their market capitalization on them.
It is not Greenspan who is solely at fault for not clamping down on these risky instruments: Those who created these instruments and those who chose to over-leverage themselves with them are at fault.
Free markets by themselves are good. They are organic. They foster growth and innovation. It is when they are abused that problems arise and people get hurt. Greenspan attempted to make free markets accessible, and a group of people took advantage of it. That is not his fault.
Greenspan, therefore, owes nobody an apology.