Many have attributed the housing bubble that eventually resulted in the Subprime Mortgage Crisis to the previous, one of the longest serving Federal Reserve Chairman, Alan Greenspan. We are pretty familiar with Greenspan, who have written Age of Turbulence. In his book, he highlighted his general argument against anyone who would finger-point him as allowing a bubble to inflate. He pronounce that it is impossible for anyone, whether the regulatory body or not, to accurately identify a bubble.
As for the Subprime Mortgage Crisis, politicians in the United States still blames it somewhat on Alan Greenspan and now that everything is cooling down, Greenspan offers his own defence. Although Greenspan was nicknamed ‘the Maestro’, he subtly attributes the period of great prosperity and low inflation to the globalization forces and technological advancement more than his skills at handling the monetary policy of US. In any case, he outlines his job at the Federal Reserve as an observer trying his best to keep to fundamentals of the economy and the crisis therefore comes as a surprise both because of how the economic agents have basically defied market assumptions namely on the issue of counter-party surveillance. Essentially the government cannot possibly provide the ‘self-interest’ that is supposed to drive the free market.
No one says that managing the economy is an easy job. Sound economics decisions by governments often turns out to be political disasters anyways so sometimes politicians stop heeding economists altogether. The recent issues that confront Tim Geithner is essentially similar; the economy is picking up thanks to his plans but people are unhappy with him. Figures on employment are not helping him anyways since the recovery is ‘jobless’ so to speak. Management of the economy is a huge balancing act for the government.
The idea of government has gone really far since the days of Locke’s conception of the social contract. The philosophy of governance in the modern world is just getting more complicated.