At the WAPO Robert Samuelson writes “The Greenspan paradox”:
After every crisis, there’s a search for culprits. Greenspan was a tempting target because his reputation was so outsized. Understandably, his legacy is now said to be tarnished. But neither critics nor defenders acknowledge the real source of failure: He was too successful.
Greenspan presided over nearly two decades of prosperity with only two historically short and mild recessions, in 1990-91 and 2001. Serious threats to the economy (the 1987 stock market crash, the 1997-98 Asian financial crisis, the dot-com bubble, Sept. 11, 2001 ) were defused. The lavish praise reflected the belief that Greenspan’s deft changes in interest rates and crisis interventions stabilized the economy without rekindling inflation.
But there was an unrecognized downside: With a less-risky economy, people — homeowners, bankers, investment managers — concluded they could do things once considered more risky. Consumers could borrow more because economic stability enhanced their ability to repay. “Subprime” home mortgages granted to weaker borrowers became safer because housing prices would constantly rise. Banks and investment banks could assume more debt because financial markets were calmer. Hence, the Greenspan Paradox: The belief in less risk created more risk.
The rest is history.
The following sentence is a ‘beauty’:
It was the Great Moderation that gave us the financial crisis and Great Recession. That’s the central lesson here, and it’s both disturbing and largely unexamined. Almost everyone wants prosperity. The holy grail of “macroeconomics” (the study of the overall economy) is to minimize or eliminate business cycles. But too much prosperity for too long breeds the conditions that lead not to routine recessions but to crashes.
Right. Almost everyone wants freedom. But ‘too much’ freedom for ‘too long’ breeds the conditions that lead not to routine ‘infringements’ but to ‘massacres’.