Alan Greenspan has published a paper at CFR that gives the boldest defence yet of the economy he created.
Now he says the economy would be booming if not for government interference:
“I conclude that the current government activism is hampering what should be a broadbased robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.”
Greenspan says we’re finally turning the corner:
“As the pace of new federal interventions slowed towards the end of 2010, aversion to illiquid risk appeared to be subsiding… Short of a full-blown Middle East crisis affecting oil prices, a euro crisis and/or a bond market (budget) crisis reminiscent of 1979, the ‘wealth effect’ could effectively substitute private ‘stimulus’ for public.”
As evidence of government activism, Greenspan points to the low level of fixed asset investment, which according to his model should be 55% higher. He blames this discretion on things like financial regulation, moral hazard and government spending.
This isn’t exactly a robust argument, as Clifford Marks at National Journal points out:
A reasonable interpretation of this regression is that it does not show what is causing the slow recovery. This isn’t Greenspan’s tack. Instead, he takes the 55 per cent his model doesn’t explain and declares “activism” a “likely explanation.” Without much evidence, he also decides that government intervention is such a strong contender for explaining this admittedly “indeterminate” variation that he is willing to declare that a full half of the variation results from the ill effects of the state.