Greenspan Professes Innocence

I see that Greenspan has produced yet another article where he tries to make us forget how he not only failed to identify , but more importantly caused the housing bubble. For examples of his dismal forecasting record see Krugman on this, for a refutation of his denial of guilt see my previous writings on this.

Greenspan is not all wrong in this new article. He is right that it would be wrong to try to solve the problems with protectionism (that will only make things worse)and he is right that in any economic system, there will exist poor judgements and excessive optimism and excessive pessimism. With regard to that latter issue however, he ignores of course that if the central bank subsidize overinvestments during periods of optimism and bails out failed investors during the bust (whish is to say, if central banks do what Greenspan did as Fed chairman), then this will create much bigger bubbles and much greater levels of overinvestments (malinvestments) than otherwise.