Wednesday, September 26, 2007

Greenspan's bonanza and Stewart's genius

According to WSJ Real Time Economics blog, former Federal Reserve Chairman Alan Greenspan's memoir, "The Age of Turbulence: Adventures in a New World," has sold 129,000 copies in its first week on book shelves, according to Nielsen BookScan, which tracks an estimated 75% of retail book sales in the U.S. This morning the book, published Sept. 17, ranks No. 1 on's list of best-sellers. And Pearson PLC's Penguin Press paid Mr. Greenspan an advance of more than $8 million, some of which the publisher earlier recouped by selling rights to foreign countries. Those fancy numbers do prove that people have a high "interest rate" on Greenspan and his book.

Last week, Emmy winning talk show host Jon Stewart interviewed Mr. Greenspan and asked him an surprisingly excellent question: Why do we have a Fed? Why do we have someone adjusting the rates if we're a free-market society? This fundamental question instantaneously reminded me of a question raised by Ronald Coase 70 years ago: Why do we have firms if the free market price mechanism is perfect? By far, the economics profession does not have good answers to both of them. I agree with Mankiw that Stewart is a genius!

BTW, mankiw didn't think Greenspan's answer to Stewart's question was satisfying and he believed the real answer has something to do with the benefits of a fiat money system and the possibility of short-run monetary nonneutrality.

A video clip can be reached by following this link.

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