Alan Greenspan has been revered in political and media circles since his benevolent reign over times of fortune as the Chair of the US Federal Reserve. Now Mr. Greenspan has acknowledged what many of us have been saying for a long time: fiscal stimulus didn’t work. (insert gasps of surprise here)
Now, to his credit, Mr Greenspan was not an avid proponent of the fiscal stimulus plan (that I have seen) and more often pointed to concerns about the financial markets and the debt (and politics) associated with fiscal spending (for instance, see here). However, Mr. Greenspan’s newly restated appreciation for normal market forces is welcome, especially given the reverence with which he is typically held by the political masses. From today’s Wall Street Journal “Real Time Economics” blog (see the full post here):
“We have to find a way to simmer down the extent of activism that is going on” with government stimulus spending “and allow the economy to heal” itself, former Fed Chairman Alan Greenspan told a gathering held at the Council on Foreign Relations in New York on Wednesday.
At this point, “we’d probably be better off doing less than more” because “you’d be far better off to allow the normal market forces to operate here,” Greenspan said.
(Again, gasps of surprise, indeed shock: You mean, we should just let the markets work?!)
According to the article, Greenspan claims that “fiscal stimulus efforts have fallen far short of expectations and the government now needs to get out of the way and allow businesses and markets to power the recover.”
I would suggest a different interpretation. The fiscal stimulus efforts have had no less effect than expected…at least by the expectations of reasonable economic thinkers. For example, see the posts here and here from my pre-TOTM days. But as to his conclusion that government needs to get out of the way? Preach it, Brother Greenspan!