It turns out, Alan Greenspan was a closet Hayekian macroeconomist all along. Beyond a dose of hedge here and there, Greenspan seems to be aware that the mistakes of the Fed needed to be corrected. But he simply chose to go with the short term politics over the long term economics:
While Mr. Greenspan acknowledges that he could have done something to avert the housing crisis, he contends his hands were tied.
“If we tried to suppress the expansion of the subprime market, do you think that would have gone over very well with the Congress?” Mr. Greenspan said. “When it looked as though we were dealing with a major increase in home ownership, which is of unquestioned value to this society — would we have been able to do that? I doubt it.”
Mr. Greenspan said that if he had taken steps to prevent the crisis, the outcome would have been painful.
“We could have basically clamped down on the American economy, generated a 10 percent unemployment rate,” he said. “And I will guarantee we would not have had a housing boom, a stock market boom or indeed a particularly good economy either.”
Greenspan many times indicated his knowledge of Hayekian economics and his sympathy for the “Austrian” school. The mystery has always been “what was he thinking”. Now we know.
ht: Just One Minute