Zakaria and Will on Greenspan

On Sunday's This Week with George Stephanopoulos, Fareed Zakaria and George Will debated the enduring qualities of Federal Reserve Chairman Alan Greenspan while Cokie Roberts mostly looked on and listened. The discussion between Zakaria and Will is of interest for a number of reasons, most of which have to do with propaganda (for lack of a better word) and perception.

Well, actually, propaganda is the right word - the spreading of ideas, information, or rumor for the purpose of helping or injuring an institution, a cause, or a person. That pretty much describes the government statistics for growth, unemployment, and inflation that keep getting hammered into the collective consciousness of the American people by government officials and Wall Street economists - 3.4%, 5.0% and 3.2%, respectively.

With the advent of high oil prices and the cresting of the housing boom with its attendant wealth creation, propaganda and perception now seem to be diverging daily - people are starting to take notice.

Neither Zakaria nor Will are economists. That in itself is novel. Two learned news personalities discussing the tenure of Alan Greenspan and the state of the economy without any references to "slack" or Phillips Rules or Phillips Curves, or is it Taylor?

Will from one side, Zakaria from the other. Larry Kudlow and Paul Krugman, without the statistics and the econospeak.

When it comes to matters of the economy and finance, Will is obviously a bit detached from reality - we've never heard anyone refer to Alan Greenspan as someone with a singular mission to "preserve the currency as a store of value" - until Sunday that is. Zakaria, on the other hand seems to prefer the role of Toto, pulling back the curtain which has kept an ordinary Wizard out of plain sight. He really does a pretty good anti-Greenspan tour de force in just five sentences.

It's funny - the more people talk about the Greenspan legacy, the more a common theme emerges, "He's done a fine job under some very trying conditions, but this housing bubble could destroy us all". Fareed follows this model and was just getting to the destruction part (we think) before Stephanopolous cut him off.

Cokie Roberts' comments toward the end of this segment are probably more significant than anything any of the men had to say - and much scarier. The idea that Alan Greenspan is one of the most trusted and authoritative men in the land (Cokie's words), and that, by extension, he is presumed to have done what is in the best interest of the people who have entrusted him (my words), is truly scary.

Here's the transcript:

Stephanopoulos: Let's turn to Alan Greenspan. There's a Washington fixture finishing up 18 years on the Federal Reserve - there's a conference out at Jackson Hole this week, and devoted to his legacy as he wraps up, as his term runs out.

Roberts: That's what's called a vertical obituary.

Stephanopoulos: It runs out at the end of January, we should have a new Fed Chairman on January 31st, and George Will, the consensus at least at the conference that he is presiding over is, that he is about the best Fed Chairman in our history.

Will: It is difficult to remember, but well to remember that thirty years ago, the learned journals were full of articles on the ungovernability of democracies, particularly this one. The index of ungovernability was inflation. It was supposed to be the systemic disease of democracies, they could not help but cause it by excessive spending over taxing, and once it started they didn't have a pain threshold sufficient to wring it out of the system. Now that was a theory culled by a fact, the Reagan-Volcker wringing out of inflation. But we don't worry about inflation anymore, because he's worried about very little else. He said as head of the Fed, I'm not there to fine tune the growth rate, I'm not here to fine tune the unemployment rate, I'm here to preserve the currency as a store of value - do that, eliminate that great uncertainty, and America boomed.

Stephanopoulos: But his key insight, Fareed, was that productivity was growing so fast that you didn't have to worry about inflation all that much.

Zakaria: I would argue a rather small dissent here. I would say that it's not Alan Greenspan that's killed inflation; it's China and India, the two great global deflation machines, pricing goods and services so much lower than elsewhere in the world. Look, Greenspan has done a remarkable job under very difficult circumstances, but what I'm struck by is when we go around the world, we tell places like Germany and Japan, "Your problem with your kind of capitalism is you can't take any pain". Inefficiencies build up in capitalism and you've got to be able to take pain to wring them out of the system. But, what we've had here is Dr. Feelgood giving us the lowest interest rates in a generation and we have coasted our way out of these problems by racking up enormous consumer debt, by racking up huge mortgages, by creating a stock market bubble, and then a housing bubble.

Stephanopoulos: That's more than a mild dissent!

Zakaria: There's a famous definition of the Fed Chairman as being the guy who takes the punchbowl away just as the party has begun. Alan Greenspan has spiked the punchbowl with grain alcohol!

Roberts: But, he actually, at this conference is warning about hard times ahead as the housing bubble bursts and consumer spending ...

Zakaria: But who created the housing bubble?

Roberts: But I think there were a couple of very interesting moments here. I think that Alan Greenspan might be the last person on earth maybe at the moment, whom everyone trusts. He is a voice of authority who people turn to and listen to, and markets respond, and politicians respond, and we're past that point with politicians, I would argue we're past that point with anchors on the air.

Stephanopoulos: He is a very canny politician. He has at times sort of signaled, "I'm OK" with the Bush tax cuts; he got some criticism for that. At other times he said, "No, no, you've gone too far". He knows the game he's playing.

Will: But he's famously Delphic also. He's impenetrable.

Zakaria: He was not Delphic on the Bush tax cuts.

Roberts: He said that you needed triggers that kicked in according to the economy and the fact that they didn't have them ...

Zakaria: He's smart enough to know what the political effect was of that qualifier.

Will: His wife said he had to propose three times before she understood him. And he famously said, "If I have made myself clear, I have misspoken". The simple truth is, we're about to go into a terrific fight over the Supreme Court. We worry about that because it's unelected people exercising judicial review and power. Much more important to us is the power of the Federal Reserve, where for 18 years this man has served.

Stephanopoulos: And that decision is going to move markets. We have to end it there. Coming up is...