Does Alan Greenspan Deserve Credit For The Dot Com Bubble Too?

from the what-else-can-we-pin-on-him? dept

Over the last few months, there’s been an increasing finger of blame pointed at Alan Greenspan, suggesting that his policies while running the Fed created the housing bubble which recently burst. However, others are going even further. A new book is suggesting not only is Greenspan responsible for the housing bubble, but he should take credit for the dot com bubble as well.

While the book suggests this in a negative manner, as we’ve pointed out for years, bubbles aren’t necessarily a bad thing — except for the people who got swept up in the hype and invested at the wrong time. Historically, bubbles tend to act as a great driver of innovation by getting a lot of innovative ideas thrown against the wall quickly to see what sticks. While bursting bubbles tend to be painful, the “good” things that come out of them tend to be quite important.

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Comments on “Does Alan Greenspan Deserve Credit For The Dot Com Bubble Too?”

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13 Comments
Hellsvilla (user link) says:

That's a dumb thing to say..

Historically, bubbles tend to act as a great driver of innovation by getting a lot of innovative ideas thrown against the wall quickly to see what sticks. While bursting bubbles tend to be painful, the “good” things that come out of them tend to be quite important.

That’s about as smart as saying that crashing planes into buildings is good because it drives innovation into making stronger girders. There’s a reason it’s called a bubble, and its not cause it reflects pretty colors in the bright sun.

Anonymous Coward says:

Natural Selection

It’s analogous to evolution. Some of the events that cause the greatest leap forward are when there are cycles of massive extinctions then rapid expansions. It gives variants a time to flourish, then gets rid of all but the top performers. A school of thought believes that the ice-ages performed that function on humans.

There’s a lot of Darwinism in the free market.

Joe Smith says:

Broken window economics

Indeed Greenspan deserves a lot of blame for the tech and housing bubbles. Of course, there is more than enough blame for both to go around and there are many others who deserve large heapings of blame.

So far as the suggestion that there are benefits from bubbles, it, like the argument that wars promote technical progress, is an example of the broken window fallacy:

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

ipanema (user link) says:

hmmm…it’s easy to point at some scapegoat. perhaps there is a need to study every thing and a good understanding of basic economic theories and policies would be good. then read all decisions made by the Fed during his time. it’s just fair.

the latest Chair of the Fed is very quiet. now, what can you make of that? are we going to point fingers at him also?

Bry says:

Fed Chair not that influential

The fed chair sets interest rates. Last I checked, he didn’t hold a gun to anyone’s head to tell them to invest in online dog-food delivery services.

There’s a lot of Darwinism in the free market.

Assuming there’s any such thing as a “free” market, witness the oil industry, or the telecoms, or the banking industry, which, even with regulation up to the eyeballs, managed to squander BILLIONS of dollars on risky loans.

Of course, it’s easy to talk about abstractions like “drivers of innovation,” when it’s not your house that’s being foreclosed, or your pension that’s down the drain, or your job that’s lost. There are real people behind those numbers, many of whom did nothing wrong.

Anonymous Coward says:

My gawd,, Mr. greenspan is a economic guru.. he is smart and he
looked at every possible angle of the world economic picture.
He tried to convince some g.w. politicians, that if they continue with the cut taxes for big business, and fund a war,”which is largely about oil” it will create a huge deficit.
the politicians did not listen.
read his book and try to understand just what is at stake

AG (profile) says:

Not a new accusation

Fleckenstein was not the first to pin the dot com bubble on Greenspan’s loose money policy. The exact same charge was expressed in the 2006 book “Bubble Man” by Australian business journalist Peter Harcher.

I get the “bubbles are good” argument, but we should not make that statement too generally. The stock market bubble in the late 1990’s was eerily similar to the one seventy years earlier, and when that one popped we had 20% unemployment for almost a decade.

Anonymous Coward says:

Yes, you could say that the tech bubble had a positive aspect in that there was a lot of investment in telecom infrastructure. Even though the bubble burst and a lot of people lost their shirts, the innovative technology remains.

The housing bubble was a different ballgame, however. There was little innovation and what was built will not be of lasting value.

What got built were a lot of McMansions and overpriced condos. These are depreciating assets that won’t add anything positive to the economy in the long term. If some do not find buyers they will sit vacant and if left untended they may quickly deteriorate, to the point where they can’t even be inhabited.

The only “innovations” were elaborate new ways to package risk to investors, which resulted in widespread fraud and trillions of losses, which we are now suffering the consequences of.

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