Former Greenspan Fan Paul Krugman Now Calls Greenspan “Worst Fed Chairman Ever”

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Paul Krugman performed a useful public service yesterday by highlighting the willingness of the former Fed chairman Alan Greenspan to give his still-held-in-undue-esteem name to wingnuts. From Krugman’s blog:

But it’s his track record since leaving office that is truly remarkable. He has been an inflation and debt fear monger, helping to make his successor’s already hard job a bit harder — and famously complained about ungrateful markets that keep failing to deliver the crises he predicts. After a brief moment of doubt about the wisdom of financial markets, he went right back to denouncing regulation while proclaiming that markets get it right “with notably rare exceptions”.

Now I have in my inbox a notice that as the Fed holds its annual meeting in Jackson Hole, Greenspan will address a counter-conference organized by a group called the American Principles Project. The group combines social conservatism — it’s anti-gay-marriage, anti-abortion rights, and pro-“religious liberty” — with goldbug economic doctrine.

The second half of this agenda may be appealing to Greenspan, a former Ayn Rand intimate — as Paul Samuelson remarked, “You can take the boy out of the cult but you can’t take the cult out of the boy.” But the anti-gay stuff? And helping these people attack his former colleagues?

However, the introduction to the post is a tad disingenuous:

When Alan Greenspan left the Fed, he had nearly divine status in the eyes of the financial press and, I’m sorry to say, quite a few economists.

While Krugman may never have worshipped Greenspan, he fails to admit that he too was a fan in the Maestro’s heyday. From a 1999 Fortune article:

There’s been a lot of bad news out there in the world economy lately. Supposed economic superpowers like Germany and Japan have fallen on hard times; Asian tigers that thought the future belonged to them suddenly find that it belongs instead to Westerners with ready cash; Latin Americans who thought they had put their past behind them are watching with horror as financial crisis strikes once again. And yet there are also some surprisingly happy economic stories out there. What do they have in common?

The biggest favorable surprise is, of course, the amazing performance of the U.S. economy. But there is Australia as well–smack-dab in the middle of the crisis zone….There is Ireland, the recently dubbed “Celtic tiger,” growing at an amazing 8% rate for the past five years. Then there are the British….not long ago they had the highest unemployment rate among major European countries, and now they have the lowest. Nor should we forget Canada….While it has lagged behind the U.S., it has strongly outpaced Europe and Japan in growth and job creation.

A lot of effort has gone into figuring out what the world’s crisis countries have in common….Yes, the common denominator of the countries that have done best in this age of dashed expectations is that they are the countries where English is spoken…

So what do the English-speaking countries have in common that might explain why they are all doing relatively well right now? I’ve done some research–namely, talked to a couple of colleagues over lunch–and come up with the following speculations:

First, there’s the Alan Greenspan theory–or is it the Larry Summers theory? Economic policy in English-speaking economies tends to be run by smart economists with one foot in the academic world, who therefore make better decisions than the doctrinaire mandarins who run ministries of finance. And in a world where the rules have suddenly changed, the story goes, clever men and women who went to MIT are better able to adapt than bureaucrats whose only expertise is in office politics.

A slight variant is the Margaret Thatcher theory. In the 1980s there was an ideological groundswell in the English-speaking world in favor of markets and against government intervention….

Then there’s the globalization theory. English is the language of the global economy….That means people who have grown up speaking English have an automatic head start.

Finally, there’s the Internet theory….One particular point that a friend made to me is that e-mail and the Internet put people who use nonalphabetic writing, like the Japanese, at a particular disadvantage.

On the whole, I’d probably place most of the emphasis on Greenspan and Thatcher. But one thing is clear: Something about the zeitgeist–sorry, I mean the spirit of the time–favors those of us who speak English. Let’s enjoy it while it lasts.

Paul Krugman’s praise of Greenspan as an economist with “one foot in the academic world” is quite a stretch. As Greg Mankiw pointed out in 2013, Greenspan received a PHD from NYU at the age of 51, long after he had become well known in DC, based on his business articles, not on scholarly work. And you also see Krugman praising deregulation via his thumbs up for Thatcher, when Greenspan was every bit as gung ho for letting the private sector, particularly banks, run wild free.

While Krugman demonstrated considerable courage in being early and forceful in criticizing the Bush Administration over the war in Iraq, he’s been loath to venture beyond leading edge conventional wisdom as far as economics is concerned and has been all too willing to carry one for Team Dem, even when the party is pursuing destructive policies, such as the mislabeled “trade” deal, the TPP and the TTIP. Perversely, Krugman seems unable to recognize that it would enhance, not diminish his stature to ‘fess up that he had changed him mind on Greenspan rather than try to finesse his earlier fandom.

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  1. Brett

    I give Greenspan more credit in some ways. At least he didn’t listen to the inflation hawks promising dire consequences if they didn’t tamp back monetary policy once unemployment was below 6% – it’s the only reason we got some decent wage growth at the end of the decade.

    1. Yves Smith Post author

      Please point to the existence of said inflation hawks in the 1990s. I was reading the business press back then and don’t recall any meaningful cohort calling for the Fed to raise rates. 4% unemployment was considered to be pushing into full employment terrain, not the “new normal” of 6% that economists have gotten so adept at defending.

      The Fed’s interest rate policies were pretty consistent with the Taylor Rule until the early 2000s, when the Fed dropped rates to negative real interest rates and kept them there for nine quarters.

      1. Andrew Elrod

        Greenspan’s whole career has been based on prioritizing inflation over unemployment. During the recession of 1975 he and Bill Simon were personally responsible for Gerald Ford’s staying the course against inflation for as long as possible. Even after Ford’s reverse course, the two pledged to keep deficit spending to a minimum.

        1. Yves Smith Post author

          That is consistent with what I said. The claim by Brett was that Greenspan was Greenspan was fighting off deficit hawks. I have no recollection of any such hawks attacking Greenspan for being a dove in the 1990s.

      2. James Edwards


        I think Brett is talking about this, “The answer lies mainly in what the Fed’s chairman, Alan Greenspan, describes as a powerful recent force in the American economy: job insecurity. In his testimony to Congress yesterday, he clearly elevated this insecurity to major status in central bank policy. Workers have been too worried about keeping their jobs to push for higher wages, he said, and this has been sufficient to hold down inflation without the added restraint of higher interest rates.”

  2. Lexington

    Although not directly related to the point of this post it is also worth pointing out the timing of that Fortune piece: Krugman and many other American economists were engaging in all manner of triumphalism in 1999 – right before the dot com implosion showed that “the amazing performance of the U.S. economy” wasn’t due to “smart economists with one foot in the academic world, who therefore make better decisions than the doctrinaire mandarins who run ministries of finance” but rather to a colossal asset bubble that all those “smart economists” somehow failed to identify – and that was just one of the profession’s epic fails since the 1990s.

    Hang your head in shame, Professor Krugman.

  3. MikeNY

    Greenspan is embarrassing himself. In addition to his established titles of “Randian Windbag”, “Hidebound Ideologue” and “Mr. Bubble”, he is fast closing in on “Crank”.

    Somebody (Andrea Mitchell?) needs to tell him to STFU and take up mah jong.

  4. Ned Ludd

    And in a world where the rules have suddenly changed, the story goes, clever men and women who went to MIT are better able to adapt than bureaucrats whose only expertise is in office politics.

    What a shill. He got his Ph.D. from MIT in 1977 and taught there until 1994.

    Every night, Paul Krugman dreams that he will be the next Lawrence Summers in the next Clinton administration. After all, “Economic policy in English-speaking economies tends to be run by smart economists with one foot in the academic world”.

    1. Phil Perspective

      Every night, Paul Krugman dreams that he will be the next Lawrence Summers in the next Clinton administration.

      No, he doesn’t. Why would he sit out the Obama administration for then? He stated a few times that he’s not interested in a government job. He probably gets enough hate mail now from the Teahadists and their ilk. That would increase 10x if he were to join the government.

      1. NotTimothyGeithner

        On his own, Krugman isn’t terrible. His sins come out when he is defending economists and Team Blue. He wasn’t a cheerleader for Obama or Hillary in 2007/8. Krugman does spout an obvious but good idea which might make pigs like Summers look less competent in the eyes of Obama who I don’t believe is much of a policy guy as much as he listens to the “vetted” expert.

        Krugman can’t get a government job because he is too liberal on occasion.

        1. Steve

          Krugman is far more useful than he is a nuisance like most pundits are. A lot of people got on the bandwagon in the 90s, the decade the Onion called “our nightmare of peace and prosperity. But Krugman pointed out the lunacy of the Bush tax cut in 1999, when Bush first proposed it and most of the press was kissing his hind quarters. Krugman also called out Greenspan in 2001 when he endorsed that tax cut. Krugman has been about the only elite pundit who uses data to make his arguments. Most of them, Brooks for example, just pull stuff out of their aforementioned hind quarters.

          Krugman also raised the alarm early about the complete inadequacy of Obama’s economic policy, which was an insult to the term “halfhearted.” He also was an early critic of Obama’s “pivot” to the deficit.

          I’ll allow that since then Krugman has mostly avoided criticism of Obama but still represents progressives far better than almost anyone in a similar position. That may be less than needed but Krugman is not the problem.

          1. jrs

            He may be the problem if trade makes the other economic issues pale in comparison and I sometimes suspect it does (and maybe not just the TPP and TPIP).

          2. NotTimothyGeithner

            Pointing out the idiocy of Dubya’s proposals doesn’t warrant a gold star. James Carville did that too, and I believe even a Senator from Arizona.

            It’s certainly nice he points out the obvious on occasion, but too often Krugman’s loyalty to Team Blue and his fellow economists lead him to ignore Krugman on his good days.

  5. EconCCX

    Whence the “Worst Fed Chairman Ever” quote? Krugman’s headline is “The Worst Ex-Chairman Ever”, an entirely different claim.

    1. Yves Smith Post author

      Krugman’s headline are regularly elliptical so I don’t read them as adding meaning to his posts, save to show irony or cleverness (contrast with the Daily Mail). If you read his headline literally, “Worst Ex-Chairman Ever” means worst Ex-Chairman of any organization. I’m sure if one thought a bit, one could come up with other former chairmen of companies or prominent organizations who were worst. There are surely ones that engaged in criminal activity in their later life, which is worse than wing-nuttery.

      One could argue that the distinction that Krugman is trying to make is from Greenspan’s reputation from his time in office v. now (which also serves to exculpate Kruggie’s former cheerleading). See this from his first para:

      In retrospect, of course, his reputation has faltered badly; whether or not you blame Fed policy for the housing bubble (you shouldn’t), Greenspan denied the bubble’s existence and even its possibility as it was inflating, while actively blocking efforts to tighten financial regulation.

      Arthur Burns had a pretty bad reputation when he was in office. I would hazard that now most people see Greenspan as worse.

      1. EconCCX

        The NC header is presented as a direct quote, not as a (strained) interpretation. Former Greenspan Fan Paul Krugman Now Calls Greenspan “Worst Fed Chairman Ever”. Again, if you please: where does Krugman do so?

        1. bystander

          It appears you don’t read headlines often, or at least not closely when subjects other than Krugman are at issue. If you did, you’d notice that it is well within the norms for the genre to simplify quotes and amp up the message of the article.

          It also seems that you believe that having Krugman criticize Greenspan only as a ex-chairman, which is what you contend (despite the first paragraph of Krugman’s post) somehow makes Krugman look better. Frankly, if Krugman wasn’t meaning to call Greenspan the worst Fed chairman ever, that reflects poorly, not well, on Krugman.

  6. diptherio

    Krugman can’t admit that he changed his mind because Krugman is convinced that Krugman is infallible (he has a simple model that proves it).

    1. Doug Terpstra

      The hoped-for story of repentance and redemption is not to be, not for Krugman, whose imperious ego reigns impervious to pardon, nor for Greenspan, who is desperately defending a disastrous career with a distracting crusade of prudish moral rectitude. (Makes you wonder about the contents of his closet). These ivory-tower ivy-league Pharisees seem pathetically incapable of introspection or real humanity. Sad.

  7. Old Hickory

    Reminds me of Keynes’s famous quote (often misattributed): “When the information changes, I alter my conclusions. What, Sir, do you do?” We’ll never hear that from Krugman.

    1. NotTimothyGeithner

      But Keynes would be considered a “liberal arts/interdisciplinary/women’s studies” major not an economist with his education background by our current U.S. standards. This makes a world of difference. Proto-economists are drawn to the field for the sense of certainty it offers.

    2. MyLessThanPrimeBeef

      A good drama would have the following:

      Greenspan shouts back: “Krugman the worst economist ever!”

      Soon after, they are seen as opponents in a hot-oil wrestling match.

  8. ciaran

    I cringed at the mention of MIT, he really does have an over inflated ego, it’s very off putting!

  9. kaj

    Thanks for digging up the Krugman excerpt. He weaves far too much of truimphalism around his “non-inflationary monetary growth” call around ZIRP, never mind the serious possibility of another bond and stock market crashes which likely will take down insurance companies, bond mutual funds and individual portfolios. We ain’t sen nothing yet!

    1. susan the other

      We may have seen everything. Tim Geithner gave an interview yesterday in which he claimed that since only the government could prevent us from getting harmed in the market by various instabilities inherent in our system, that it follows that it is the government’s obligation to do so. Too bad Hank Paulson didn’t have a handle on this.

  10. John Yard

    Krugman has always been a trend follower. During the 1990’s was a rabid free trader, scornful of any who complained about trade inbalances. Today he bangs the drum for fiscal ‘investment’ a la Japan . He has a column today misreading the British election , as seen by his distorted perspective .
    BTW , I look forward to an analysis of the British election in NC. It is a stereotype shattering event.

    1. NotTimothyGeithner

      I don’t know about earth shattering. The most unpopular man in the UK is Tony Blair. Labour hasn’t denounced the Blair years, and they didn’t attack Cameron for his interventionist policies which Milliband stopped in Syria. Instead of focusing on policy shifts, they tinkered on the outside for fear of being attacked which didn’t stop Obama’s old campaign manager. Labour attacked their own voters over Scotland. The potential anti-Cameron vote was out there, but Labour chose new Labour’s failed strategy under the guidance of Obama’s pal Axelrod. Was Milliband calling for a new green infrastructure instead of inane attracting investment horsecrap? The answer was no, and Russell Brand’s endorsement was a plea that Milliband might listen to a good idea. If that is what Brand thought, he wasn’t alone. The recent U.S. elections played out the same script. The German elections. The last round in Canada. The new left can not win anymore without lying upfront and a good deal of celebrity appeal.

      Once again, Harry Reid’s adage about voting habits was proven correct. Here is a great question, how could one Obama adviser do so well while another one did so poorly?

  11. RUKidding

    I admit to being an Econ dummy, but I stopped listening to Krugman a long long time ago. What a doof. His fealty to Ayn Rand panty-sniffer Greenspan was a big “tell” for me. phooey.

  12. susan the other

    I find it pretty disgusting that Greenspan goes against the Fed by attending a counter-culture conference of the American Principles Project. That’s gotta be the Koch brothers. Greenspan is being bought. Can’t we make that illegal? Greenspan is an idiot, but he’s a dangerous idiot because a lot of people pushing their principles are so uninformed. Thanks to Krugman for exposing Gspan. But I’m also amused by Krugman’s 1999 Fortune piece. It sounds like something straight out of the late 1800s, praising the British Empire and its english speaking allies. In the last 20 years Krugman has lost his quaintness; if he wrote like that today he’d be laughed at.

  13. bh2

    “Something about the zeitgeist–sorry, I mean the spirit of the time–favors those of us who speak English. Let’s enjoy it while it lasts.”

    English will not only last but will inevitably become the ever more dominant and permanent feature of global culture.

    Those of us born to it have merely been lucky — that’s true. But Krugman’s implication that the English language may be merely a fleeting historical phenomenon to be displaced by yet another (Chinese, perhaps?) evidences just how thinly connected this man’s perceptions are to the real world.

    Fortunately for him (and many of his ilk), this obvious defect is no disqualification for academic economists.

    1. MyLessThanPrimeBeef

      I bet Krugman speaks a little Chinese…just in case of, er, rapid change.

      “Ni hao ma?”

    2. different clue

      English will eventually evolve and separate into related languages the way Latin evolved and separated into the Romance languages.

      There will be Englandish, Ameringlish, Hinglish, Singlish, Spanglish, Anzaclish, etc. The English we know today will
      survive for a few centuries in a simpler form as International Bussiness Money Power English. A few centuries later will see English as we know it become a dead language of interest only to scholars, as Latin is today.

      1. bh2

        There is a stronger argument that English will dominate, though surely with lots of different dialects. Large market share tends to beget larger market share.

        There are a couple of dozen official languages in India, but English is the unifying, common language used in commerce and government. It’s similarly becoming a matter of convenience in an increasingly globalized world. Not to say Indian English and Australian English aren’t different. But the point is that an Indian person and an Australian person can communicate without need of translation. Whether the language evolves in the future or not, it’s fate (in whatever form) will be determined by its utility.

        Joseph Conrad was not a native speaker of English but adopted it because he deemed it the most expressive of all languages for literature.

        I believe English also has the largest vocabulary of all languages, not least because it has so freely incorporated words and phrases from other languages when they are apt for a specific meaning. Unlike French, which has official agencies appointed to regulate what is or is not “proper” use of the language and strictly discourages adoption of any foreign expressions.

        Spanglish relies on a working knowledge of both English and Spanish and has no regular rules. Any word in either language is acceptable in spoken use, so it’s hardly likely that it could replace English any more than it could replace Spanish.

        Remember also that modern Icelanders would have no difficulty conversing with their Viking ancestors. All languages do not necessarily evolve over time, though most do. That said,…

        “Predictions”, as Yogi Berra said, “are difficult — particularly about the future.”

  14. Deloss Brown

    The fact that anyone who posts on NC would take issue with Paul Krugman is depressing to me. The fact that he may have said something ambiguously complimentary about Greenspan, and has now changed his mind, is in his favor–he rails regularly against economists and politicians who cannot admit they were wrong. He is a powerful advocate of intelligent policies, and he has a prominent forum from which to make his arguments. NC is a prominent and powerful forum, too (thank you God), but there’s no reason it should be the only one.

    Really, from whom are we farther? And who represents the greater danger? Paul Krugman, or Scott Walker? Me, I have no interest in ideological purity. We need all the help we can get.

    A Civil War general who had not been an abolitionist, and who was made one by the war, went home to Vermont on leave. His old, non-abolitionist friends told him, “You’ve changed. We haven’t.” He replied, “Fools never do.”

    Full disclosure: I am, of course, prejudiced in Paul Krugman’s favor because I hold two bachelor’s degrees from MIT–in chemistry and literature, not in economics.

  15. ewmayer

    Hmm, that 1999 Fortune article is a good one (in terms of illustrating the ‘flexibility’ of the man’s Weltanschauung — sorry, I mean view of the world), but my favorite Krugman Fortune piece from 1999 has to be the following one. Most NC readers are probably familiar with this particular (in)famous opus, but the benefit of those who are not, I’ve replaced with “Xcorp” the name of the particular “new economy” company PK was shilling for here — see if you can guess it before clicking on the link to check your answer:

    The Ascent of E-Man R.I.P.: THE MAN IN THE GRAY FLANNEL SUITFortune Magazine, May 24, 1999

    (FORTUNE Magazine) – I grew up in a planned economy. Bureaucrats didn’t run everything: Small-business men were more or less free to buy and sell as they saw fit. But those who controlled the economy’s “commanding heights,” its key industries, were administrators rather than entrepreneurs, conformists who were valued less for their productivity than for their loyalty, whose career advancement depended on their political skill. For ordinary workers, the system had some benefits: It was hard to get ahead, but once you had a good job, your life was secure. Still, the economy was often appallingly inefficient and consistently unresponsive to consumer needs.

    No, I am not an immigrant from Eastern Europe. I’m talking about the U.S. economy of the ’50s and ’60s, when General Motors was the very model of a modern major company.

    In those days progressive thinkers like John Kenneth Galbraith used to ridicule economists who still believed what they had learned from Paul Samuelson’s textbook, which was that free markets could be counted on to match supply and demand. After all, business itself was clearly moving away from markets and toward planning. More and more of the economy was dominated by large corporations, and those corporations didn’t place much faith in the invisible hand. For example, AT&T owned it all–not just the long-distance lines, but the local phone systems, the factories that made telecommunications equipment, even the phones in your home. By contrast, in today’s cutting-edge e-businesses (see Cover Stories), the company often owns–or rather, rents–little but brainpower.

    That’s a long way from the era of the man in the gray flannel suit, when the great business empires were not run according to the principles of supply and demand: They were command-and-control systems, and people did what they were told. As technology grew more complex, as big corporations grew ever bigger, as computers made it easier to impose centralized control, it was clear to smart people that the economy would bear ever less resemblance to the competitive system described in obsolete economics textbooks.

    But over the past two decades the market has steadily gained ground–not only against socialism but against big-business capitalism. Large companies account for a steadily declining share of employment and value added. Moreover, even within corporations there is a growing tendency to rely on individual initiative, on independent profit centers free to take risks and do it their way. (True, sometimes individual initiative leads to something that looks like mass conformity–seen one Banana Republic, you’ve seen ’em all. But we’re talking about management here, not tastes.)

    The retreat of business bureaucracy in the face of the market was brought home to me recently when I joined the advisory board at Xcorp — a company formed in the ’80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Xcorp does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated: It buys and sells gas both at the wellhead and the destination, leases pipeline (and electrical-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It’s sort of like the difference between your father’s bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the company’s pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it.

    What happened to the man in the gray flannel suit? No doubt he was partly a victim of sex (er, I mean gender) and drugs and rock & roll–that is, of social change. He was also a victim of information technology, which ended up deconstructing instead of reinforcing the corporation. But probably the biggest force has been a change in ideology, the shift to pro-market policies. It’s not that government has vanished from the marketplace. It’s still a good guess that in a completely unregulated phone market, long-distance companies would buy up local-access companies and deny their customers the right to connect to rivals, and that the evil empire–or at least monopoly capitalism–would rise again. However, what we have instead in a growing number of markets–phones, gas, electricity today, probably computer operating systems and high-speed Net access tomorrow–is a combination of deregulation that lets new competitors enter and “common carrier” regulation that prevents middlemen from playing favorites, making freewheeling markets possible.

    Who would have thunk it? The millennial economy turns out to look more like Adam Smith’s vision–or better yet, that of the Victorian economist Alfred Marshall–than the corporatist future predicted by generations of corporate pundits. Get those old textbooks out of the attic: they’re more relevant than ever.

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