By John Tamny of RealClearMarkets
When economic problems reveal themselves, a great deal of finger-pointing inevitably ensues. For quite some time now economists and commentators have sought to place blame for the housing crisis, and quite a lot of it has been heaped on former Federal Reserve Chairman Alan Greenspan. But when it comes to housing, both Greenspan’s critics and Greenspan are wrong about what really happened.
The general consensus among Greenspan’s critics (including the Wall Street Journal’s editorial page, along with Nobel Laureate Gary Becker), is that his 2003 decision to keep the Fed funds rate at 1% for a year led to the rush into housing. Intuitively this makes sense, but if true there would presumably exist a great deal of empirical or anecdotal evidence supporting the notion that housing does best when nominal rates of interest are low. The problem here is that very little evidence supports the claims made by Greenspan’s detractors.