Evaluating Greenspan

Reason discusses Alan Greenspan’s legacy as Fed Chairman with Milton Friedman, Ron Paul, James Grant, Bryan Caplan and Jeff Saut. Here’s a sample:

Reason: Analysts often complain that Greenspan did nothing to help solve our low savings rates and our trade deficits. Is the Fed relevant to these problems? Are they problems at all?
Friedman: I do not think you or I can say what the right savings rate is or should be. There’s nothing wrong with a person, family, or country saying, “We have high enough income. We don’t need more. We’re going to spend it all.” We can have a perfectly prosperous and active economy along those lines. I don’t think it’s helpful to ask, “Is this rate right or wrong?” Instead we should ask, “Have we adopted polices that reduce incentives to save?”
In that respect, there’s a great deal to be done. The tax system distorts the incentive to save, sometimes pro-saving and sometimes anti. Government should ask itself how best to maintain institutions under which you have an undistorted market in savings.
So far as foreign balance of payments is concerned, we have to let the dollar float. You shouldn’t try to control the price of foreign exchange any more than you should try to control the price of other things. The country seems to have learned that price controls are not good.
I do not believe that [mass foreign holding of U.S. securities] is something to be feared. The only reason [a widespread loss of will to buy U.S. Treasury securities] would happen is if our central bank followed inflationary policies that made it undesirable to hold American securities, and that’s our fault, not theirs. I think the concern that has been expressed about foreign balance of payments is in large part mistaken and in large part reflects the defects of statistics available.
If you have a foreign owner of a bond or stock who loses confidence in the American economy and sells, whom do they sell it to? They have to sell it to people with a stronger confidence in the U.S. economy who are willing to hold on to it. If the foreigners dump bonds or stock and use dollars to buy other U.S. assets, there’s no net effect. If they use them to buy consumer goods, then that means an increase in balance of payments, a plus on income accounts.

Posted by on November 4th, 2006 at 3:58 pm


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