Magazine article Global Finance

Battered Not Bowed

Magazine article Global Finance

Battered Not Bowed

Article excerpt

BOOK REVIEW

ALAN SHRUGGED

How will history judge the Fed Chairman's first thirteen years?

By Mark Johnson

Alan Shrugged. Alan Greenspan, The World's Most Powerful Banker. By Jerome Tuccille. John Wiley & Sons, Inc. $27.95

At first sight, the charge sheet against Alan Greenspan reads like a strange one: that he failed to foresee the stock market bubble of the late 1990s and that he believed too readily in the premise that the tech revolution had permanently shifted up a gear the rate at which the American economy could run without asset prices overheating. Surely, that's like charging a Milwaukee traffic cop with neglecting their duty in nabbing illegal immigrants coming over the Rio Grande. It's just not in the job description. According to conventional wisdom, the chairman of the Federal Reserve should only take such external factors into account as inputs in calibrating his main task: fighting inflation. And on that score, say his defenders, he can't be faulted.

Well, Greenspan himself knows that's weak ground on which to base his defense, and in recent months he's begun to fight back against the growing tide of criticism that threatens to erode his once-dominant reputation. He's recently underlined how difficult it is for a central banker to gauge when a bubble is forming, let alone to know when, or how, to prick it.

To be fair, that's not a new theme: Back in 1999 he publicly mused that "identifying a bubble in the process of inflating may be among the most formidable challenges confronting a central bank But musing is one thing, acting another, and it's this indecisiveness-especially after the earlier, highly public, attack on "irrational exuberance"-that may do most to damage his formidable legacy in the fullness of time. Of course, that historical judgment will be colored by what happens over the next year or so-in particular, whether the weight of consumer debt accumulated during the asset bubble collapses on the American economy to produce a real "double-whammy. …

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