The Financial Times has an interview with former Federal Reserve chairman Alan Greenspan that I think is interesting on several counts. The first is for a number of very interesting oracular pronouncements, very Greenspanian. Translated from the economistese here are a few of observations:
- Business capital investment is low (“Innovation opportunities are, for the time being, somewhat saturated, whereas they were extraordinary in the 1990sâ€)
- We may be entering a period in which inflation is of renewed concern and largely out of the control of the Federal Reserve (“In the intermediate period, the disinflationary pressures I was fortunate to operate under are gradually disappearing.â€)
- Not so oracular:
Many who support Mr Greenspan’s argument that Fed rate policy did not cause the housing bubble still think it should have done much more on the regulatory front to limit its damage.
The former Fed chairman, though, contests this. “The real problems you are dealing with are criminal,†he says, pointing to abusive mortgage brokers who misrepresented the products they were selling. “It is called fraud – fraud or stealing. In this country it is a criminal offence,†he says – raising his voice for the first and only time in the interview.
Mr Greenspan says fraud is a matter “for the attorneys-general of the statesâ€, not the Fed. “Putting 10 of these guys in jail will do more than you can imagine,†he says.
- Wages in the U. S. are low by historic standards (“real compensation tends to parallel real productivity, and we have seen that for generations, but not now. It has veered off course for reasons I am not clear about.â€)
Pay particular attention to his general take on globalization.
The other quality that struck me about this interview was the “man from Mars” character of Mr. Greenspan’s responses. I wonder if he believes that human actions have effects or that policy affects behavior. For example, I think there are some pretty clear reasons for the relative lack of capital investment in the United States. For example, U. S. companies are doing that investment elsewhere. And policy has abetted that behavior: I’ve been complaining that the Bush tax cuts should have been targetted at domestic business spending rather than on consumer spending for six years.
The “extraordinary innovation opportunities” of the 1990’s are somewhat illusory, too. U. S. companies engaged in an extraordinary level of investment in technology over a period of nearly 20 years without seeing much in the way of return in the form of increased productivity. In the late 1990’s they began seeing the return on the investment.
