Was Greenspan any Good?
February 4, 2006
Well, Alan Greenspan is finally gone, to a ringing of hosannahs. I didn’t think he was all that great, but I suspect we’ll miss him, as the coming Fed Chairmen (including Bernanke) are likely to be worse.
There have been four Fed Chairmen since the end of the Bretton Woods gold standard in 1971: Arthur Burns, William Miller, Paul Volcker and Alan Greenspan. Greenspan, I’d say, was the best of the bunch. The first two were gross inflationists. Volcker was more heroic, as it was he who took on the task of pulling out of the 1970s inflation and cleaning up after the mess that Burns and Miller left behind. He did it, but it was messy. It could have been done much better. Greenspan has been the beneficiary of Volcker’s efforts, enjoying the slow decline in interest rates as a result of Volcker’s stabilizing of the dollar. Greenspan also didn’t cause any catastrophes, I would say, although he did have a starring role in causing the Asian (and Russia and Brazil) Crisis of 1997-1998. It would have been easy to prevent, and he was warned, and told how to prevent it, in late 1996 and early 1997. But besides that, things went pretty well.
However, was Greenspan the Best Fed Chairman Ever? Let’s compare his track record to that of William McChesney Martin, who presided from 1951 to 1970. Martin was a bit of a guardian angel at the Fed, as not only did he hold the Bretton Woods gold standard together as it was under attack by the inflationists from 1968-1970, his first act when coming into office was to correct a weak-dollar episode in the late 1940s, which ended with the “Fed Accord.” We now look back on that period as what Paul Krugman has labeled a “Golden Age,” of increasing wealth and abundance, a strong moral fiber to society, and a broad and expanding middle class. Compare with the immigrant slums of the decades before the Second World War, or, for that matter, with the deteriorating middle class and disintegrating society of the last three decades or so.
Here we can compare the Martin period and the Greenspan period with some commonly watched economic statistics:
|Statistic (average during the period)||Greenspan 1987-2005||Martin 1951-1969|
|CPI-U all items||3.09%||2.26%|
|Nonfarm Real Compensation Per Hour||1.28%||2.66%|
|Nonfarm Business Output per Hour [productivity]||2.24%||2.52%|
|10-year Treasury bond yield||6.30%||4.09%|
I might note that government economic statistics were more honest in Martin’s day as well.
So, from this, we can basically conclude that Martin kicked Greenspan’s butt, plain and simple. On the worldwide scale, the Bretton Woods period was a time of stable currencies and economic expansion worldwide, notably in war-ravaged Europe, Japan, and Latin America.
Indeed, as the speculator Doug Casey points out from time to time, it appears that the Martin period was indeed the US’s historic high point. Believe it or not, in “real” terms (i.e., in gold terms), people are actually poorer today that they were in 1965! And that, quite simply, is one reason why it now takes two incomes to live the American Dream Lifestyle, when it took only one in 1965. Here are some rather horrifying charts, for the more visually-inclined:
We can see quite clearly the great “Golden Age” boom after World War II, the disaster of the 1970s, and the recovery since, which has brought us nearly back to where we were forty years ago. But only at the cost of the two-income family. And why does it take two incomes?
Here we can see that weekly wages are nowhere near where they were in the mid-1960s, partially because non-wage compensation (payroll taxes, pension, healthcare, etc.) has risen dramatically. (This figure was so surprising that I triple-checked it. See for yourself right here.)
The stock market tells a similar story:
It appears, at this point, that we are entering another period of inflation and recession which may resemble the 1970s. It’s still early, so maybe things won’t get that bad. But take a look at how horrible the 1970s were. If we suffer another disaster of that scale, I suspect that the 1960s peak will look more and more like the US’s historic high point, in the way that perhaps 1910 was Argentina’s high point, and about 1960 was Colombia’s high point.
The gold standard, which was the operating system that William McChesney Martin worked within, was wildly successful. When a country wants to be successful like the US was in the 1960s, perhaps they will adopt a gold standard. The US government itself seems far too corrupt to be bothered with such things, too busy stuffing their pockets with loot. Indeed, widespread impoverishment is not such an unpleasant situation for a society’s elites, as it provides them with lots of cheap labor. Perhaps a leader that breaks this mold will appear. It sure would be nice.