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Garrison on Greenspan

Here’s a letter that I sent a few days ago to the Wall Street Journal:

To the Editor:

Alan Greenspan now blames deregulation for today’s financial turmoil (“Greenspan Admits Error to Hostile House Panel,” October 24).  Whatever deregulation there was, and whatever its merits or demerits, there is one crucial financial instrument – dollars – that throughout was supplied by an utterly unjustifiable state monopoly – the Fed.  Unfortunately, this decidedly unfree-market arrangement draws little attention.

Skepticism is advisable when the former head of a government-created and protected monopoly blames the market for using that monopoly’s output unwisely.  Would the demand for mortgage-backed securities have been as frothy as it was if Mr. Greenspan’s Fed had not created so much new money?  Would the demand for owner-occupied housing itself have been so intense?  Because money plays a common and vital role in all of these transactions – and because Mr. Greenspan’s Fed kept pumping dollars into the economy with no way to know what the ‘correct’ supply is – you’ll pardon my inability to give credence to Mr. Greenspan’s latest pronouncements.

Donald J. Boudreaux

This 2006 essay by Auburn University’s Roger Garrison is prescient.