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Things to Read by Keynes

The Punchbowl and the Designated Driver

William McChesney Martin, Federal Reserve Chair from 1952 to 1969, said that the job of the Federal Reserve Chair was to take away the punchbowl before the party really got going.

Alan Greenspan seems to have thought that the job of the Federal Reserve Chair was to spike the punchbowl with grain alcohol--but then to be ready to be the designated sober driver afterwards:

Matthew Yglesias: Alan Greenspan, Socialist: Krugman talks about Alan Greenspan:

Q: What was the problem with Greenspan, and where and when did he go wrong?

A: Greenspan is the real thing. He believes the Fed can be the designated driver, the one who takes you home safely after the party has gotten crazy. So he brushed aside any worries about regulating and taking precautionary measures. His belief in the perfection of free markets led us into the ditch we’re in now.

The interesting quirk in the fabric, though, is that it isn’t really free markets as such that Greenspan believed it. Rather, it was belief in the combination of free markets and central banking. He didn’t believe that the free market would operate uncorrected and flawlessly, he believed that the Federal Reserve’s central planning functions could be done so effectively on a post hoc basis that there was no need for any form of preventive regulation. Real market fundamentalists go in for a lot of goldbug nonsense. Fundamentally, the Greenspanist combination of massive skepticism of government intervention with overwhelming confidence in the power of the all-knowing and benevolent masters of monetary policy seems strange and unsustainable. But it is, of course, easier to sustain if you yourself are the central planner.