Greenspan’s Fatal Conceit — UPDATED

UPDATED — I took this story from Paul Krugman, and then was pulled away from the computer just as I was working to re-check the context of the quotation.  Turns out, Greenspan was quoted out of context and the story is essentially bogus.  The moral of the story is check everything for yourself — and never trust Krugman.

ORIGINAL POST:

Newly released transcripts reveals that the staff of the Federal Reserve was aware by the Spring of 2004 that Fed interest rate policy had created a dangerous and growing housing bubble — Alan Greenspan’s response was to appeal to the special knowledge and wisdom of the tiny economic elite wielding power at the Fed as an excuse to block public release of the research results had been brought to Alan Greenspan’s attention.  In Alan Greenspan’s fatal words,

We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.

The full record of Federal Reserve transcripts from 2004 can be found here.

Greenspan — educated from the beginning as a Keynesian economist — evidently was never taught (or never understood) the key lesson of economic science:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

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