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.