« Tobin: Friedman's Theoretical Framework | Main | Jacob Hacker: Yes We Can? The New Push for American Health Security »

February 24, 2009


Michael Meeropol

Isn't there a middle ground? Given that the Chair of the Fed has a great "bully pulpit" (witness what happened when AG used the term "irrational exhuberence") when there are asset bubbles it would be very easy to deflate them with a few choice words.

Imagine if Alan Greenspan had stated in 2005 (or even earlier) that by any sense of market fundamentals (rate of inflation, rate of increase in market rents), housing prices were inflating much too rapidly to be anything but a bubble. AND -- that executives in companies buying fancy mortgage-backed securities based on these bubble-inflated housing prices were failing in their fiduciary responsibility to their shareholders.

The bubble would have deflated long before it reached its peak.

The "neo-Schwartz" view seems to require the FED to hit the entire economy over the head not just to restrain inflation but to restrain asset bubbles -- but this other approach, targeting the bubbles directly would work and not produce the collateral damage that a macroeconomic slowdown would.

The comments to this entry are closed.

Search Brad DeLong's Website


Recent Posts

Reference Section

From Brad DeLong

About Brad DeLong