Greenspan: The Debate Continues

Jeffrey Rogers Hummel and David Henderson have responded to critics of their defense of Alan Greenspan’s monetary policy. Answering particularly the criticisms of Cato adjunct scholar George Selgin, they provide further evidence for their contention that Greenspan was not pursuing an unduly loose monetary policy in the early years of this decade.

As I noted before, in early November Cato published a paper by Henderson and Hummel with the now-controversial and counterintuitive thesis that “although Greenspan’s policies weren’t perfect, his monetary policy was in fact tight, and his legacy is one of having overseen low and stable inflation and a striking dampening of the business cycle.” A couple of weeks later we published a paper by Lawrence H. White with a very different perspective. White argued that after the dot-com bust, the Greenspan Fed held interest rates extremely low for several years, setting off what Cato senior fellow Steve Hanke called “the mother of all liquidity cycles and yet another massive demand bubble.”

Back in May, Gerald P. O’Driscoll Jr. had also sharply criticized the Greenspan Fed in a Cato Briefing Paper. He wrote that the Fed had been creating asset bubbles and moral hazard by its implicit policy of intervening to keep asset prices high.