Jon Stewart vs Alan Greenspan

Jon Stewart last night proved himself a master of the smart and tough question,

when Alan Greenspan came onto his show to plug his book in the wake of the Fed’s

50bp rate cut. Stewart put two big questions to Greenspan.

The first question was, essentially, "if you’re such a believer in free

markets, why do we need a Federal Reserve to set interest rates at all?".

Greenspan’s answer was that we didn’t need a Federal Reserve back in

the halcyon days of the gold standard, but that in these postlapsarian days

of fiat money, such a thing is a regrettable necessity. He’s right, of course,

and if he didn’t do a good job of explaining why the market would be worse than

the Fed at setting overnight interest rates, that can probably be forgiven on

the grounds that he was, after all, appearing on a fake news show.

The second question was more interesting. Look what happened when the Fed slashed

rates, said Stewart: the stock market, where rich people keep their money, skyrocketed.

Now most of us work for a living, and keep our money in the bank, and the Fed

has just reduced the interest rates that banks pay while rewarding the speculators

in the stock market. Isn’t it essentially taking from the working stiff and

giving to the rich?

Greenspan’s answer here could have been better, I think. He didn’t say that

working people often have things like credit cards and mortgages, and that lower

interest rates help those people rather than hurting them. Instead he started

talking about sound monetary policy and sentiment and forecasting ability, which

was all well and good, but didn’t quite nail the question.

Still, the whole thing is worth 8 minutes of your time.

(Via Dealbreaker)

This entry was posted in fiscal and monetary policy. Bookmark the permalink.