Thursday, March 10, 2005

Economic Evaluation of Alan Greenspan

by Tom Bozzo

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, as it did the railroads (PDF) in some circles.* 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.

Update: Brad DeLong lists eight times when he's thought Greenspan was making a serious monetary policy mistake. He sides with Greenspan, in retrospect, on 5 — the most recent being the 1998 financial crises (Long-Term Capital, Russia, East Asia) — and thinks the chairman could have done better in responding to the NASDAQ crash and in availing itself of nonstandard policy levers in 2002 (I agree). The jury is out on the present pace of increases in the fed funds target rate. He contends that Greenspan has an unusually large endowment of monetary policy acumen, which I don't disagree with either, though the question is whether DeLong or other highly talented macroeconomists would have done as Greenspan, or better, given the same information.

Update 2: I review the response further here.

* Which is not to say that I think Fogel actually gave the railroads their proper due, for technical reasons related to the "social saving" model described in the linked paper.

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