Kevin Duffy on Alan Greenspan, the enabler of all of the problems he sees today

To the editor,

This was quite a revealing interview; thank you for bringing it to us.  It is a good example of how politicians can become more honest the further removed they are from office and closer to meeting their maker.  Greenspan was quite frank about serious problems like entitlements, lack of savings, trade wars, budget deficits, price inflation and a bond bubble.  However, he was less honest (with himself) about his own role in enabling these: first, heading a commission to “fix” Social Security which expanded payroll taxes and second, presiding over a Federal Reserve that suppressed interest rates and created moral hazard (the “Greenspan put”), resulting in asset bubbles and a “Too Big to Fail” banking crisis.  Worse, his short-term success was endorsed by Milton Friedman in 2006 and central bankers all over the world copied his easy money policies, fomenting the “everything bubble” and enabling a global debt buildup unparalleled during peacetime.

While Reshma Kapadia admitted that the financial crisis “cast a more critical light on Greenspan’s tenure of low interest rates,” she unfortunately added the bromide, “and his faith in the market’s ability to self-regulate.”  Interest rates are the ultimate regulator of time preference, rewarding savers for their willingness to defer consumption and invest in greater production in the future.  By setting non-market rates below their natural level, Greenspan discouraged savings and sapped productivity, the very things he worries about.  Let’s be clear: central banking is at the root of our economic ills today, not free markets.

~ Kevin Duffy, letter-to-the-editor sent to Barron's, but never published, October 21, 2018