1. Compare, for instance, the criticism of Green-
Economic Outlook, September 2005, pp. 91124.
span in "The Bernanke Reflation," Wall Street
6. All of our numbers come from the enormously
Journal, February 29, 2008, p. A16, with the earlier
convenient website of the St. Louis Federal Reserve,
praise of Greenspan in "The Chairman's Mystique,"
http://research.stlouisfed.org/fred2/. M1 consists
Wall Street Journal, January 31, 2006, p. A14.
of currency in circulation, travelers' checks, and
2. Newsweek column for June 1969, reprinted in
transaction deposits (accounts that permit unlim-
Paul Samuelson, The Samuelson Sampler (Glen
ited checking). M2 adds to M1 savings deposits,
Ridge, NJ: Thomas Horton, 1973), p. 55.
small time deposits, money market deposit
accounts, and retail money market mutual fund
3. Milton Friedman, "The Greenspan Story: `He
shares. M3 (which the Fed ceased reporting in
Has Set a Standard,'" Wall Street Journal, January 31,
March 2006) adds to M2 bank-issued repurchase
2006, p. A14.
agreements, Eurodollar deposits held by U.S. resi-
dents in foreign branches of U.S. banks, large cer-
4. Christina D. Romer was the first to point out
tificates of deposit (over $100,000), and institu-
that the apparent improvement of the U.S. macro-
tional money market mutual fund shares. MZM
economy after World War II was a statistical anom-
(short for Money of Zero Maturity and reported
aly, in "Spurious Volatility in Historical Unemploy-
only by the St. Louis Fed) is M2 minus small time
ment Data," Journal of Political Economy 94 (February
deposits plus institutional money market mutual
1986): 117; and "Is the Stabilization of the Postwar
fund shares.
Economy a Figment of the Data," American Eco-
nomic Review 76 (June 1986): 31434. Although her
7. For the monetary base, we have used Board of
strong claim of no difference between prewar and
Governors Monetary Base (monthly and not sea-
postwar performance (after throwing out the Great
sonally adjusted), Not Adjusted for Changes in
Depression as a statistical outlier) is controversial,
Reserve Requirements: BOGUMBNS. For currency
even her strongest critics cannot deny that the
in circulation, we have used Currency Component
improvement beginning around 1987 has dwarfed
of M1 (monthly and not seasonally adjusted):
any postwar improvement.
CURRNS. We have subtracted the latter from the
former to get total reserves. The St. Louis Fed web-
5. Alan Greenspan, The Age of Turbulence: Adventures
site does give several alternative direct estimates of
in a New World (New York: Penguin Press, 2007), pp.
reserves. But those compiled by the St. Louis Fed
38588; Alan Greenspan, "A Response to My
are adjusted for changes in reserve requirements,
Critics, Financial Times, April 6, 2008; and Greg Ip,
whereas those compiled by the board of governors
"His Legacy Tarnished, Greenspan Goes on
exclude any excess reserves held in the form of vault
Defensive," Wall Street Journal, April 8, 2008. This
cash, all required clearing balances, and Fed float.
explanation was anticipated by Ben S. Bernanke,
(You can find this critical detail only in the foot-
before he replaced Greenspan as chair of the Fed, in
notes of the Fed's H.3 release.) For some idea of
"The Global Saving Glut and the U.S. Current
how massive the resulting distortion can be, con-
Account Deficit," March 10, 2005, http://www.fed
sider December 2007. The board of governors
eralreserve.gov/boarddocs/speeches/2005/2005
reported total reserves (monthly, not seasonally,
03102/default.htm. Agreeing with Greenspan is
adjusted, and not adjusted for changes in reserve
financial columnist Martin Wolf, "Why Greenspan
requirements) of $42.7 billion. If you add in vault
Does Not Bear Most of the Blame," Financial Times,
cash not covering reserve requirements, that num-
April 9, 2008. See also Diego Valderrama, "Are
ber jumps to $60.3 billion. And when you bring in
Global Imbalances Due to Financial Underdevelop-
required clearing balances and float, the number
ment of Emerging Economies?" Federal Reserve
rises to $72.6 billion, 70 percent greater than the
Bank of San Francisco Economic Letter no. 2008-
board's estimate. If the distortion were consistent
12, April 12, 2008. One of the strongest academic
across time, the board's reserve totals would still
critics of the Greenspan-Bernanke savings-glut the-
tell us something. But the distortion is not close to
sis is John B. Taylor, "Housing and Monetary
consistent across time, in part because banks
Policy," Remarks before the Symposium on Hous-
increasingly used vault cash in their ATMs.
ing, Housing Finance, and Monetary Policy, Jack-
Required clearing balances arise out of the Fed's
son Hole, Wyoming.), www.stanford.edu/~johntayl
check-clearing operations, pay interest, and are
/Housing%20and%20Monetary%20Policy--Tay
explained in E. J. Stevens, "Required Clearing
lor--Jackson%20Hole%202007.pdf. But Taylor's
Balances," Federal Reserve Bank of Cleveland Economic
condemnation of Greenspan is mainly for his fail-
Review 29 (1993, Quarter 4): 214.
ure to raise the Federal Funds rate sooner, not for
his pushing it down too far initially. For statistical
8. Debit cards unambiguously reduce the demand
analysis of world savings over this period, see
for currency. ATMs have two opposing impacts. By
International Monetary Fund, "Global Imbalances:
making currency more readily available, ATMs
A Saving and Investment Perspective," World
tend to both increase the number of currency
7