The Age of Ignorance at the Federal Reserve
By William A Fleckenstein with Frederick Sheehan
[pounds sterling]12 McGraw Hill
Alan Greenspan has, in equal measure, been lauded and lambasted; and make no mistake, this short book falls most definitely into the latter category. It is unfailingly critical of Greenspan's near two-decade reign between 1987 and 2006 as chairman of the US Federal Reserve (the Fed) and his record in overseeing the world's largest economy.
For his faithful adherents, Greenspan ushered in an era of unparalleled prosperity. But his detractors argue that his decisions--and indecisions--have led to a near decimation of the world's largest financial system.
Looking at Greenspan's early record, Fleckenstein and Sheehan begin this book by examining a misplaced faith, if not a fixation, with US productivity. As the authors remind us, quoting George Santayana from The Life of Reason, "Those who cannot remember the past are condemned to repeat it".
It was not the old school type of industrial productivity that held Greenspan in thrall, with US factories and assembly lines creating more and more goods, employment and wealth--rather, it was technological productivity, a strangely abstract type of productivity that apparently (according to Greenspan) began in July 1995 and led to what this book describes as the biggest stock market bubble the US has ever experienced.
What is the definition of a stock market bubble? The book quotes John Makin of the American Enterprise Institute's neat explanation--it is "when the value of stocks has more impact on the economy than the economy has on the value of stocks".
Just his imagination?
"A rational person might ask 'what on earth caused Greenspan to shift from self-proclaimed bubble-fighter to bubble-blower in such a short time?" the authors muse. "One answer might be his imagination," they speculate.
For if we are to question the actions of Greenspan on a purely rational basis, it would appear that he as the Fed chairman, acted in direct contradiction to what that institution defines as the three primary responsibilities of its chairman.
These responsibilities are, we learn from the Fed's own website, to conduct the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices; to supervise and regulate banking institutions to ensure the safety and...