The Man Who Knew: The Life and Times of Alan Greenspan — Twenty: ALAN VERSUS ALAN

1. 1. Alan Blinder argued that American policymakers exaggerated the perils of inflation, calling rising prices 'more like a bad cold than a cancer on society.'
2. 2. Greenspan joked he would have preferred Blinder were a Communist rather than soft on inflation.
3. 3. Greenspan reverted to a narrow focus on price stability, arguing low inflation boosts productivity by forcing firms to cut costs.
4. 4. Greenspan's productivity justification for low inflation crumbled when Fed staff found correlation but not causation, and revised GDP data destroyed even the correlation.
5. 5. At the July 1994 FOMC meeting, the Fed staff's model implied inflation could create millions of jobs with no long-term output loss, contradicting Greenspan's stance.
6. 6. Paul Krugman later noted that efforts to measure inflation's costs come up with 'embarrassingly small numbers.'
7. 7. At Jackson Hole, Blinder argued central banks can boost employment in the short run but not the long run, sparking media attacks that portrayed him as a dissident.
8. 8. Greenspan may have orchestrated or allowed the media attacks on Blinder, as his fingerprints were not on the dagger but he failed to defend his vice chairman.
9. 9. In November 1994, Greenspan pushed through a 75 basis point rate hike over Blinder's objections, relying on market psychology rather than econometric models.
10. 10. Greenspan's 1994 tightening achieved a soft landing, keeping inflation low and unemployment below 6%, earning the economy the nickname 'Goldilocks.'
11. 11. Blinder resigned in January 1996, concluding 'Never disagree with Greenspan on tactics: He will be better.'
12. 12. Greenspan's success partly reflected luck: the Fed underestimated the credit crunch and misread the economy in 1993, but deeper forces like global competition and technology reduced inflation.