Commentary

Missing the Target in the Blame Game

By Will Wilkinson
This article appeared on Marketplace on March 26, 2008.

What we all really want to know about the economy is: Who’s to blame!?

Many people point the finger at former Fed chief Alan Greenspan, the Maestro himself. He kept interest rates low, and encouraged techniques to make mortgages accessible to more people. By doing so, the argument goes, Greenspan practically blew the housing bubble with his own breath and should have seen it coming.

One financial analyst has created a blog devoted exclusively to blaming Greenspan. It’s called “The Mess that Greenspan Made.”

But Monday morning quarterbacking is a bit too easy, isn’t it? If Greenspan really should have seen it all coming, shouldn’t Wall Street have seen it coming, too? But instead of getting rich from their foresight, they got crushed under their “collateralized debt obligations.”

Meanwhile, Greenspan’s successor, Ben Bernanke, has slashed interest rates to stave off recession. He’s extended massive lines of Fed credit to prop up major banking houses. One would like to see sound, time-worn principles of central bank management here, but it looks like a free-form jazz odyssey to me.

Which is to say, it’s Sunday now — too early to tell if Bernanke’s a genius or a fool — but the Monday morning quarterbacks are already warming up their typing fingers. Maybe Bernanke’s easy monetary policy delays rather than accelerates the economy’s readjustment? Maybe the Fed’s Wall Street rescue encourages the idea that no risk is too big, and sets us up for the next disaster?

The problem here isn’t that the guy in charge isn’t smart enough. The problem is that there’s a guy in charge at all. We’ve put a central planner at the beating heart of our market system, but we’ve known for decades that central planners rarely have the information they need, or the incentive to use it correctly.

If it all goes wrong for Bernanke, just remember: the problem isn’t the quarterback. It’s the rules of the game.

Media Appearance Will Wilkinson says Monday Morning quarterbacking for the economy is a bit too easy (March 26, 2008) [MP3]

Will Wilkinson is a research fellow at the Cato Institute.