The Economist Echoes My Indictment of Greenspan

The latest issue of The Economist have a highly interesting leader and special report about how Alan Greenspan have messed up the American economy. The articles are surprisingly good (Considering how gold have been rejected as a "barbarous relic" in the same publication) for several reasons.

First, as is noted on the Mises blog, they quote the great Ludwig von Mises and his analogy of the effects of inflationary monetary policy: "Part of America's current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future. The words of Ludwig von Mises, an Austrian economist of the early 20th century, nicely sum up the illusion: “It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.”

Secondly, because they echo my indictment against Alan Greenspan for having created the large imbalances of the American economy. Not only do they point to how Greenspan's inflationary policies have had the effect of creating asset price bubbles and the imbalances in the form of a excessively low savings rate and excessively high debt burden it have created but when arguing against Ben Bernanke's view that asset price bubbles shouldn't be pricked they use the same argument as I did about how the expectations of rate cuts in the event of falling asset prices helps drive the bubble:

"However, his [Bernanke's] model assumed that bubbles just happen. In reality, monetary policy can contribute to the inflating of a bubble—not least if investors expect the Fed to cut interest rates when share prices fall, but to do nothing to prevent their rise."

Whether or not the author of this special report read my article, it is in any case good that this insight is published by one of the world's most influential publications.