As the mortgage markets continue to work through their difficulties and the Federal Reserve lowers interest rates more significantly than anticipated, Alan Greenspan has been on a book tour. His new tome offers readers a refreshingly candid and illuminating account of his years in the limelight. As he has ventured to the obligatory venues and endured the requisite interviews, he has been criticized for continuing to comment on economic matters. There have even been some who have suggested that there should be a period after leaving office that senior officials be prohibited from expressing opinions on the economy. All I can say to the folks who would try to silence the former Federal Reserve chairman is “Get a Life!!”
Putting aside the obvious fact that the First Amendment pretty much allows all of us to talk in most circumstances, there are compelling and socially beneficial reasons for Mr. Greenspan to voice his observations. Markets are driven by information; in fact, processing information efficiently is essentially what they do. The prices of stocks, bonds, commodities, and other assets reflect the collective assessment of future prospects and risks. While markets are not perfect in this regard, they are awfully good.
The stream of material that is out there to be evaluated at any given moment is almost endless. Data pours in from government agencies around the globe; companies provide a sea of press releases and financial reports; and news services bring any nuance on the weather, the legal system, political and military turmoil, and anything else that might be reasonably relevant. In the midst of this deluge, a lot of people are also talking—stock and industry analysts, corporate executives, government officials, and, yes, even economists. All of this information is out there for investors to consider in making decisions. Some will be given more weight than others.
Alan Greenspan has earned a reputation as a keen observer of and participant in the global business complex over a career that has spanned multiple decades. While he is certainly no longer in the midst of the fray as he was during his tenure at the Federal Reserve, he remains very active and has the benefit of a wealth of experience that few can match. When he has something to say, it can only benefit the financial markets to hear it. The fact that there has been some (at least temporary) movement in response to his recent comments is evidence that his opinions are valued.
To provide perspective, Mr. Greenspan’s statements about the probability of a recession caused only a modest stir. When he made his famous “irrational exuberance” remark at the height of his power, there was an immediate and international response of much greater magnitude. The difference has to do with his current role; he is highly (and justifiably) regarded, but he is no longer the master of the show.
Like anyone who tries to predict the vagaries of our complex economy, he will be right at times and wrong at times. His past record clearly reflects both (as he has acknowledged). If his observations remain a generally reliable guide for investor behavior, his impact will likely continue to be notable. If not, his influence will diminish rapidly and dramatically. In any case, it is highly likely that his sway over the markets will ebb at some point. That has certainly been the fate of his illustrious predecessors, many of whom were just as dominant in their eras at the helm.
The essential point is that investors can gain knowledge from Alan Greenspan and the thousands of others who routinely pontificate about the economy. They can also glean useful tidbits from the myriad other sources that are out there. Markets are perfectly capable of sorting it all out and attaching appropriate weights to it. The fact that there is a measurable response to his remarks has been cited as proof that he should not be talking. Quite the contrary! It is the ultimate proof that his views are meaningful to the market process. To suppress any source of potentially relevant information is counterproductive to the very nature of the sophisticated financial complex and systematically leads to inefficiency. To try to muzzle someone precisely because his opinions are respected and sought after is just plain silly.