I wrote before about Greenspan's efforts to whitewash the role of the Federal Reserve in our current financial situation, and have been writing for a year or more about the role of the Fed in the housing bubble and the subprime crisis, so I won't go into that here. However, I think Greenspan does point out one other important lesson we all need to learn, the lesson of avoiding hubris.

Back in the 1970's, Greenspan was one of a handful of those decrying not just Nixon's closing of the "gold window" by terminating foreign payments of gold for dollars, but denouncing the entire Federal Reserve system as inherently unworkable. Greenspan, Hazlitt and others argued that there was simply no way humans could manage the money supply as a whole better than individual banks could manage their own little corner of it. The argument was a familiar one, being basically the argument against any "scientific management" of the economy. Individuals can manage their own affairs, and their interactions tend toward the best possible outcomes, if not always reaching them, while any attempt at central management tends to produce suboptimal results.

However, in the 1970's, as now, that was a minority position. Despite the terrible track record of managed currency, the theory had already developed that gold was "anachronistic" and "inflexible" and a return to the gold standard was unthinkable. Then, as now, liberals subscribed to a variety of neo-Keynesian theories, arguing for government "injection" of cash to keep the economy running smoothly, as well as to remedy various "social injustices". This resulted in policies such as the Community Reinvestment Act, as well as the efforts to use inflation to spend our way out fo crises, such as Carter's stagflation, Clinton's dot-com bubble, and Bush's 2001 slump. As that last points out, this position has now become the belief of most conservatives as well, making Keynesian theory the predominant beliefs. However, in the 1970's there was an alternative, the "monetarism" of Friedman and others. (A few conservatives still claim to be monetarists, but from their actual practice it is clear they are Keynesian in all but name.)

Greenspan and others refused to buy into the monetarist arguments, rightly pointing out that there was no "right" level of inflation, that any regular expansion of the money supply was inherently harmful. The uneven distribution of unused potential throughout the market meant that any expansion of credit would be "too much" for some segments and "too little" for others, even if one agreed that 100% utilization was an ideal we should try to reach. Of course even that premise is absurd, as inflation, even while it is causing the appearance of economic growth, is already causing poor allocations in the market, so even by chasing the illusory goal of "full utilization", one is already doing more harm than good.

Greenspan recognized all this, as a private citizen. When he was a mere individual, without the power to set policy, he recognized that no human mind could manage to figure out all the variables needed to set the size of an ideal money supply. In fact, he recognized that even the most brilliant man could not, as subjective valuation changes so frequently no one could ever know enough. He knew the limits of human thought, and recognized them.

That is, until he was offered the power.

I don't know why he took the post. Maybe he thought he could work from the inside, minimize the harm done by the Federal Reserve. Maybe he thought he could push for reform better from the board. Maybe he was even then thinking he was smart enough to "do it right". But, whatever his original goal, what is clear is that, at some point, all the praise went to his head, and he came to believe he really could set the ideal money supply, the perfect interest rate. In other words, he forgot all those important lessons and came to believe he was smart enough to do the impossible.

And that is an important lesson. As I said before, it is not so much who we elect as the powers we give them. We can elect the best people on earth, but if we grant them too much power, ask them to manage things they should not, in the end they will be corrupted. Even the most noble man, given tyrannical powers, will become a tyrant.

So, rather than worry about who we elect, what policies they hold, maybe we should look at ourselves, at what we expect from government, and then make it clear, to any candidate, what we expect them to do, and, more importantly, to not do.

POSTSCRIPT

For those curious exactly what I think government should and should not do, the best summary can be found in three posts, and the links contained within them, "My Vision of Government", "My Vision of Government Part II", and "The Benefits of Federalism". I also describe what I see as the consequences of misusing government in "An Analogy For Government". As I seem to be linking to all of those posts recently, I think I will write up a large, comprehensive summary soon, explaining my entire vision of proper government, federalism, and the consequences of ignoring those principles, all in a single post.