Jon Stewart vs Alan Greenspan

Jon Stewart last night proved himself a master of the smart and tough question, when Alan Greenspan came onto his show to plug his book in the wake of the Fed's 50bp rate cut. Stewart put two big questions to Greenspan.

The first question was, essentially, "if you're such a believer in free markets, why do we need a Federal Reserve to set interest rates at all?". Greenspan's answer was that we didn't need a Federal Reserve back in the halcyon days of the gold standard, but that in these postlapsarian days of fiat money, such a thing is a regrettable necessity. He's right, of course, and if he didn't do a good job of explaining why the market would be worse than the Fed at setting overnight interest rates, that can probably be forgiven on the grounds that he was, after all, appearing on a fake news show.

The second question was more interesting. Look what happened when the Fed slashed rates, said Stewart: the stock market, where rich people keep their money, skyrocketed. Now most of us work for a living, and keep our money in the bank, and the Fed has just reduced the interest rates that banks pay while rewarding the speculators in the stock market. Isn't it essentially taking from the working stiff and giving to the rich?

Greenspan's answer here could have been better, I think. He didn't say that working people often have things like credit cards and mortgages, and that lower interest rates help those people rather than hurting them. Instead he started talking about sound monetary policy and sentiment and forecasting ability, which was all well and good, but didn't quite nail the question.

Still, the whole thing is worth 8 minutes of your time.

(Via Dealbreaker)