Saturday, March 28, 2009

Did the Fed Cause the Housing Bubble?

Recently the WSJ held a "symposium" on the question. It's interesting that even one of the responders more sympathetic to the Fed had this to say:
I'm not claiming that we should have a Federal Reserve. We simply can't depend on getting another good chairman like Mr. Greenspan, and are more likely to get another Arthur Burns or Ben Bernanke. Serious work by economists Lawrence H. White of the University of Missouri, St. Louis, and George Selgin of West Virginia University makes a persuasive case that abolishing the Fed and deregulating money would improve the macroeconomy. I'm making a more modest claim: Mr. Greenspan was not to blame for the housing bubble.
Another finishes her post with:
At this point, dickering over whether Alan Greenspan should have formulated monetary policy in strict accordance with an econometrically determined "rule," or whether the Fed even has the power to influence long-term rates, raises a more fundamental question: Why do we need a central bank?

"There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard." That was Mr. Greenspan, speaking 17 months ago on the Fox Business Network.

In the rules-versus-discretion debate over how best to achieve sound money, that is the ultimate answer.
Maybe we can realistically hope for a dismantling of the Fed in the not so distant future?


Blogger Burgess Laughlin said...

As a long-term student of socio-intellectual history, I find the author of the first passage you quote to be intriguing. He is a classic example of an in-line activist. Henderson is advocating for greater economic freedom using arguments he can draw from his work as economics professor and think-tank member.

Also significant are two other facts about his contribution to the "symposium":

(1) He cites two apparently pro-market academics in his support. Citing established professionals increases the rhetorical weight of his argument.

(2) He uses a rhetorical technique of introducing a radical idea (free banking) and then backs off saying he is at the moment making only a less demanding claim (by implication, the Federal government, not Greenspan personally, was responsible for the bubble in the USA). Thus he has introduced the radical idea into the minds of his audience but focuses on the easier to convey lesser position.

7:19 PM  
Blogger Galileo Blogs said...

Good and helpful observations, Burgess.

4:49 AM  

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