By Jim Walker – Asianomics (Hong Kong)
Sebastian Mallaby has written an autobiography of Alan Greenspan called The Man Who Knew. We have a copy but thankfully it was a gift and we did not have to part with any hard-earned cash ourselves. Last week, at an economics roundtable in Baltimore, we came face-to-face with the man, under whose tenure, the Federal Reserve became the most powerful central bank in the world and, in our view, the most dangerous.
It was an interesting afternoon. Mr Greenspan held court with a dozen of us. He waxed lyrical on financial history, the importance of gold, his own interpretation of economic theory and the massive problems facing Donald Trump.
On gold he was adamant that he had not changed his views one bit since publishing his essay Gold and Economic Freedom in The Objectivist in 1966. It is still the only currency to have absolute faith in. People who used fiat money were, he claimed, “foolish”. Indeed, he contended that he had run the Federal Reserve in order to mirror the Gold Standard (you could have fooled us).
When asked why he took the reins at a fiat money institution, one he despised philosophically, his response was that it was better to be on the inside and occasionally biting his tongue rather than being on the outside shouting to no avail. Why didn’t he try to tie monetary expansion more to the money supply growth rules that a true gold standard would have dictated? Well, of course, he had to “follow the laws of the land”. By this he meant the Humphrey-Hawkins Act. What he didn’t admit was that that Act has no fixed targets for inflation, growth or employment and he could have set them wherever he wanted to try and maintain sound money. He just didn’t try.
One area that we suspect he is right about is the prospects for growth in the US. In his view they are not good. He put this down to the soaring costs of entitlements which, he contended, would force gross domestic investment down as a percentage of GDP because of the reductions in the savings pool caused by the said entitlements. In his view the US is moving steadily towards zero growth in GDP.