No Controlling Authority.

• Author: Lynch, Michael W.
• Position: Role of Federal Reserve System chairman Alan Greenspan in manipulation of economic cycles

The economy is too complex for even Alan Greenspan to handle.

Throughout the 1990s, Federal Reserve Chairman Alan Greenspan basked in the glory of a strong economy--and a strong stock market. Greenspan-worship perhaps never reached the ridiculous heights chronicled by disgraced journalist Stephen Glass, who in 1998 penned a fictitious article for The New Republic about an investment bank that actually created a shrine to Greenspan. But Glass' fabrication, which included tales of traders celebrating Greenspan's birthday with cake and song, wasn't so ridiculous that people didn't believe it at first. "As far as the financial markets go, [Greenspan's] more powerful than God," the honest-to-god, real-life chief market strategist for the investment banking firm Ferris, Baker Watts effused to the Baltimore Sun in 1998.

Today, with the economy slowing, the NASDAQ tanking, and the Dow Jones Industrial Average sliding sideways, Greenspan is coming in for criticism. "Alan Greenspan is out of control," wrote Fox News Channel's Bill O'Reilly earlier this year. "Take that to the bank. The guy messed up big time and now will not explain himself." More recently, the famously irritable talk-show host has been lambasting Greenspan on the air, decrying the Fed head's general unwillingness to talk in anything other than the most inscrutable terms.

Yet if Greenspan were ever to explain himself clearly, O'Reilly wouldn't like what he'd hear. Neither would all those people who desperately want a single person to be in "charge" of the economy, making sure that stock portfolios remain flush and jobs secure. Hard-truth time: As skillful as he may be, Greenspan has never managed the U.S. economy. "The Fed didn't cause the boom," says Lee Hoskins, who served as president of the Cleveland Federal Reserve Bank from 1987 to 1991. "The slowdown in economic activity wasn't caused by monetary policy."

"If the Fed is trying to steer the macro economy, it has an impossible task," adds Lawrence H. White, the F.A. Hayek Professor of Economic History at the University of Missouri's St. Louis campus. All the Fed controls, after all, is the money supply. To be sure, that's no small matter. "If it gets things wrong," cautions White, "it can drive the economy through business cycles, and through its history the Fed has done that many times. If they get things right, they avoid being a source of disturbance, but they don't affect the real growth of the economy. The best the Fed can...