Simply out and out wrong

According to this Bloomberg report (hat tip CB), yet another critic of former Fed chief Alan Greenspan surfaced yesterday in central bank historian Allan Meltzer of Carnegie Mellon University in Pittsburgh.

Better late than never, it would seem, but we probably could have avoided a lot of the problems we see today if there had been this kind of growing criticism back in 2004.

Meltzer said that Greenspan "lets himself off much too easy" in recent comments about his role in the housing bubble, taking issue with yesterday's op-ed piece in the Wall Street Journal where, for the first time, the former Fed chairman acknowledged that low interest rates had something to do with the housing bubble.

Worried about "deflation" as real interest rates first probed negative territory starting in 2002 and then made a home there for the next three years, Meltzer was consulted on subject.

"I said, 'Alan, we have had six or seven deflations in the United States in the history of the Federal Reserve, and only one of them ever had terrible consequences, and that was 1929 to 1933,'" he said. "That was because deflation was not only bad, but because the money growth was lower and lower and lower, so the expectation was deflation would continue. In all the other six, nothing happened."

Greenspan "continued to believe that deflation was the problem. He was wrong about that, simply out and out wrong," Meltzer said.

In another few years there will probably be a near-consensus on the subject of who is most responsible for the current mess.