A super rather candid interview of Alan Greenspan.
Why Greenspan left saxophone? It was basically comparative advantage (perhaps in this case absolute advantage):
Before you were a professional monetary policy person, you were a professional saxophonist. What are the similarities between the two professions?
Virtually none.
Really?
The only thing that was economic, I might say, about my music career, aside from the fact that I did everybody’s tax returns in the band, was the decision I made to leave the music business on economic grounds. I essentially concluded that having seen what some of the really good people could do, and fundamentally recognizing that it’s not an issue of studying and you’ll learn, there are certain inherent qualities that you’re born with, and if you don’t have them, you’ll never achieve certain levels. Mozart had it when he was 4. I never had it, period. I was a fairly good amateur musician, and I was an average professional. But the one thing I saw was that the big band business was fading. So I made an economic decision, and it turned out the best judgment I ever made in my life.
I am coming straight to him defending his tenure:
You’ve defended your record and explained your policies over and over again. Four years later, some still blame you for the financial crisis. Are you worried that’s what you’ll be remembered for?
I’m too busy. Let other people worry about that. It does, however, tell me something which I found disturbing. My basic purpose was not self-defense, although there was undoubtedly some of that involved. I was defending Federal Reserve policy. From my perspective, there were two strains of this criticism. One is that we left the federal funds rate too low in 2003, and secondly, on the regulatory side, we at the Fed did not respond appropriately and allowed underwriting standards on subprime mortgages to collapse. When I testified before the Financial Crisis Inquiry Commission, they brought up the Homeowners Protection Act [which gives the Federal Reserve broad powers] to prevent mortgage fraud. I laid out step by step what we had done to address the issues raised by members of Congress. But when the commission’s report came out, the evidence I presented was utterly disregarded. It’s sad. I had similar experiences when I tried to explain the Fed’s monetary policy from 2002 to 2005.
You did spend a lot of time making your case, though.
That’s basically because I seriously believed that I could make a difference. I was mistaken.
He still believes that govt. intervention/stimulus does not sort out things…
You didn’t support the stimulus?
No, I did not. It was unnecessary. I argue in a book I am writing that the stock market recovery in early 2009 created an equity stimulus that, as best as I can remember, had a far larger impact on economic activity than [the stimulus act] without incurring increased public debt.
He cites an example from sorting Savings and Loans crisis in 1991:
What do you think of this administration’s policies to address this?
Well, it’s not the present administration, it’s the current view of most policy-oriented economists. And here, regrettably, I am in the minority. The notion that if there is an economic problem, the government is obligated to address it, necessarily creates uncertainty about the future. And there’s hard research that shows such activism is responsible in part for the very heavy discounting of earnings on longer-lived business investments, and by households that had dramatically shifted from owner occupancy to short-lived rentals in the face of the uncertainty of the direction of home prices. We need to replace such activism with a policy that allows the markets to correct their own imbalances.
Remember the Resolution Trust Corporation in the early ’90s? I was on the oversight board of the RTC. It got stuck with the job of liquidating more than 700 failed savings and loans. Some of the stuff that the RTC wound up with was perfectly liquid and saleable. But a big chunk was uncompleted eight-hole golf courses, half-built office towers, and vacant malls. Nobody wanted it. We all sat around and said, “This stuff is deteriorating very rapidly, and if we don’t get rid of it, the taxpayers are going to take a huge hit.” I mean, the numbers were very, very large. Somebody suggested, “Let’s package it and sell it.” And we did. Needless to say, the bids were less than 50 percent of the original cost. Congress was outraged. We were giving away taxpayer-owned assets to greedy vulture funds.
Leave the criticism to Krugman et al..
