Wednesday, September 26, 2007

Jim Grant Strikes Again

Jim Grant blasts Alan Greenspan's new book in the WSJ, 18 September. "The fantastic irony of Mr. Greenspan's career path ... seems hardly to have registered on Mr. Greenspan himself. ... A deeper kind of libertarian might have added: 'Maybe nobody can know enough to set interest rates for an entire economy'."

If Greenspan understood the economics of information, he'd know this. Does anyone know what the Fed does? It buys and sells bonds. Don't we have people who do that privately? Yes, we call them bond traders and they work for Goldman Sachs, Merrill Lynch, etc. Why should a Fed bond trader know anymore than one working for a brokerage house? Worse, we go back to 1773 and 1776. Most economically inclined people know Adam Smith wrote the Wealth of Nations, 1776. They have heard of the "invisible hand". Few know that in 1773 Adam Smith wrote the Theory of Moral Sentiments. After reading it, I read these books in 1973 and 1995 respectively, I learned that Adam Smith was a Presbyterian minister. This got me to thinking: whose invisible hand was he talking about? For Greenspan to know enough to set interest rates, he would have to be a deity. Speaking of Fed head as a God, see "Song of Bernanke" in the WSJ, 31 August. It's a laugh riot.

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