ISSN 2330-717X

Former Federal Reserve Chairman Alan Greenspan Speaks Out On Costs Of Government Activism

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In an article to be published in the forthcoming issue of International Finance, Dr. Alan Greenspan, former chairman of the Federal Reserve, issues a major analysis of the U.S. government’s economic recovery and reform efforts since the collapse of Lehman Brothers in September 2008.

Greenspan calculates that long-term fixed corporate investment “is now at levels, relative to cash flow, that we have not experienced since 1940.”

This shortfall, he explains, accounts for much of the tepid recovery and current abnormally high levels of unemployment.

Applying a range of analytical and historical lenses, and data-sifting techniques, Greenspan concludes that the primary cause of the malaise is the exceptional level of government activism during the past two years. “Although the actions the government took in the immediate aftermath of the Lehman Brothers shutdown were necessary and appropriate responses to the crisis,” he writes, “these actions are not necessary any longer, and could in fact be crippling our chances of a full long-term recovery.”

Greenspan argues that the real problems with government activism began with the stimulus package of early 2009 and the failure to phase out the “temporary” actions taken during the last quarter of 2008.

He argues that this fostered a degree of risk aversion to investment in illiquid fixed capital, on the part of both corporations and individuals, that was most evident in our longest-lived assets – real estate, both nonresidential and residential. “Without the abnormal weakness in long-lived assets,” he writes, “the current unemployment rate would be well below 9%.”

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One thought on “Former Federal Reserve Chairman Alan Greenspan Speaks Out On Costs Of Government Activism

  • March 4, 2011 at 12:32 pm
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    The numbers prove exactly what the greatest economic mind of all times whose foresight and brilliance help lead America out of the 2001 depression.
    If only Obama had stayed Bush’s course when Greenspan was in charge, we’d have Morning in America.
    We need to get rid of all those stupid rules like ‘mark to market,’ GAAP, and give bank all social security income into Goldman-Sacks capital depreciation fund.

    Reply

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