A Stitch in Haste

"Has he decided whether he exists yet?"
--Ayn Rand on the young Alan Greenspan

So exactly one week after I blog about the (potential in my opinion) housing bubble and invoke the memory of "Dow 36,000," Paul Krugman writes an op-ed about the (de facto in his opinion) housing bubble and invokes the memory of "Dow 36,000."

I'm just saying...

Of course, unlike me Krugman has an ulterior motive in his essay, namely to level even more cheap shots at Federal Reserve Chairman Alan Greenspan:

Even Alan Greenspan now admits that we have "characteristics of bubbles" in the housing market, but only "in certain areas." And it's true that the craziest scenes are concentrated in a few regions, like coastal Florida and California.
...
So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it's hard to imagine what that might be. After all, the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what's left?

[A Wall Street strategist] believes that the Fed's apparent success after 2001 was an illusion, that it simply piled up trouble for the future. I hope he's wrong. But the Fed does seem to be running out of bubbles.

This is, of course, utter nonsense.

I suppose during this current "Episode III" mania it's tempting to create Palpatine analogies where none exist, and it would probably please Krugman no end to fantasize about Greenspan as a sinister, manipulative back-stabber ("That's for the housing market to decide..." "I am the housing market!").

Interest rates have been, and to a lesser extent remain, abnormally low for one very simple reason, one that Krugman conveniently omits: September 11th! The Fed had been lowering interest rates consistently from mid-2000 and had generally been thought to be done when Fed funds stood at 3.5% on September 10, 2001. But after the attacks and in light of non-existent inflation signs, the Fed decided to keep lowering rates to help prevent a recession (which, remember, it did). With the risk of economic crisis averted, the Fed has been consistently raising rates since June 2004, eight times in eight meetings, yet rates are still half a percentage point below where they were on September 11. How exactly is that Alan Greenspan's fault? Would Krugman have been happier if Greenspan had rammed larger, more disruptive increases into the system?

And let's remember a few more things about Alan Greenspan and "conspiracy theories." It was Greenspan who argued tirelessly, and long before it was fashionable, to fix Social Security and to adopt the highly disciplined "pay as you go" system for the rest of the federal budget. It was Alan Greenspan who argued relentlessly that the best thing to do with the budget surpluses of the 1990s was to pay down the national debt. It is Alan Greenspan who never misses an opportunity to remind politicians that the best of all possible fiscal policies is to have low taxes and low government spending, and that preferring either higher taxes or higher deficits is a Hobson's choice.

I'm not saying Greenspan was a genius over the past five years, but to accuse him of manipulating interest rates to manufacture a housing bubble to "hide" the stock market bubble is close to defamatory and way beyond moronic. (And how exactly did he "cause" the stock market bubble again? Oh right, by decrying "irrational exuberance.")

If you want to chastise homebuyers, or lenders, for irresponsible conduct in the (potential) housing bubble, by all means do so. I tend to concur. But leave Alan Greenspan out of it. In this context, he doesn't exist.
Other thoughts at Lifelike Pundits.
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