Mr. Greenspan probably made his most interesting contributions to economics in the fields of trade and productivity, where he recognized the power of the information age and helped beat back ever-present protectionist sentiment with eloquent explanations of globalization and its benefits. He surely was a savvy politician and inspired confidence on Wall Street. Yet for all his many virtues, monetary policy remains poorly understood by average Americans and even most financial and economic experts. Mr. Greenspan's opaque and shifting rationales and methodologies leave many wondering what he actually thinks and what comes next.
Although the U.S. economy has generally prospered over the last 18 years, dollar instability generated at the Fed caused the Asian crisis of the late 1990s and the crash of the American market in 2000-2002. Now inflation is peeking over the wall for the first time since Mr. Greenspan took the reigns. After, a period of price stability in the early to mid-90s, where the Fed appeared to be tracking real-time price indicators, the Fed for the last decade has regressed to a seeming reliance on backward-looking data. This has produced a pendulum effect, where the Fed is always out of phase with current market conditions, yielding a cycle in which it can't catch up fast enough but then overshoots the mark.
With Mr. Greenspan's deserved prominence and credibility, and with his seeming intuitive grasp of globalization, he could have led a new effort to stabilize monetary and trade policies around the world. Instead, specious arguments about China's monetary conduct still get a popular hearing and threaten to escalate into a trade/currency war. Iran is moving to sell its oil in euros, and others could follow. Asia is considering a future regional currency similar to the euro. Global monetary issues abound, and I'm not sure the U.S. has properly set the stage. All these matters, abroad and at home, would be far simpler if we remembered to keep the dollar as good as gold.