I did not set out to write a book that did a “hatchet job” on Alan Greenspan. I want to be clear that the observations made herein were not second-guesses but were objections made in real time against policies that were often misguided. They were not misguided because the bubble later burst; they were misguided because they encouraged debt, encouraged speculation, and put the extension of economic expansion—one element of the Fed’s mandate—into a clearly superior position to the maintenance of stable prices in the long run through suppression of forces that could result in excessive inflation or deflation.
From Maestro, My Ass! Afterword, written in 2009:
Economic actors, in short, evolve their responses based on the environment. And, under Greenspan, it was clear that the environment was designed to always be sunny, safe, and warm. There was scant need for a margin of safety when nothing bad had ever happened and was never permitted to happen. Economic actors relaxed, because it was in their interest to do so. Why evolve a hardened shell, with all of the energy that requires, if you never need a hardened shell?
But there always comes a time when the levees erected to keep us dry are breached. It is a fact of economic nature that there are (in Dr. Greenspan’s terms on that October day) “once-in-a-century credit tsunamis.” It is at those times that the heavy lifting of economic evolution occurs. The soundest entities survive. The risk is that if all of these entities have been evolving unsafe strategies, the resulting economic carnage can change the system forever.
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