Dean Baker says that Alan Greenspan should have used his public appearances to warn people about the stock and housing bubbles, and if he had, the bubbles would not have inflated to such dangerous levels.

I don't have any problem with Dean's suggestion that talk matters. I'm not sure Greenspan could have been convinced there was anything more than "froth"; in housing markets, and that's part of the problem with this approach, and one reason why

I like rules that move against rising asset prices automatically rather than relying upon the discretion of Fed officials. But if somehow Greenspan had been convinced that a dangerous bubble was developing, and he was confident that he was correct in this assessment, sure, he should have sounded the warning.

But what if he was wrong about whether there was a bubble (and he was)? What good does it do to have the Fed chair saying there's no problem, go take out a variable rate mortgage and live happily ever after? With all of Dean's criticisms about economists missing bubbles, why is he confident the next time will be any different? And who will believe the Fed chair the next time anyway given how wrong Greenspan was? That's another reason I prefer rules that move against prices automatically, they don't require that people doing the talking be believed.

But my main problem with this approach comes with the implicit suggestion that one person, the Fed chair, should hold so much power within the Federal Reserve system, that it was Greenspan's job alone to sound the warning.

Greenspan's Fed was not a democratic, deliberative institution. It was an authoritative, top down system where disagreement with Greenspan was dangerous. But the Fed is more than one person, it's a committee that is intended to bring representation of various interest groups - bankers, businesses, and the public -- to the Fed's decision making process. However, those other interests have been mostly muted as we have concentrated the power within the Federal Reserve system in two ways. First, power has moved from the district banks to the central bank in Washington, and second - particularly since Greenspan's term - power has been concentrated into the hands of a single person within central bank, the Fed chair.

The Fed chair, should, of course, be a leader and the strongest voice among Fed members, but the Fed chair shouldn't be the only voice. Dean says that the Fed chair is too careful about what is said in public, but I think the Fed also overvalues the appearance of unanimity. When there is disagreement among Fed officials about whether there is a bubble, about the course of policy, whatever, let's hear it, there is valuable information in the full spectrum of views. If there is substantial disagreement among policymakers, that alone is a warning signal, and one that needs to be heard. During the Greenspan years, there were voices within the Fed that tried to warn us against regulatory problems, to warn us that a bubble was developing, and so on, but those voices were squashed and stripped of any real authority. That was partly Greenspan's doing, but it was also partly the press making Greenspan into a celebrity that overshadowed any other voices.

So I agree that talk matters, but let's listen to lots of voices - part of Dean's frustration is that nobody listened to him when he warned about the housing bubble - and not put all the responsibility for warning about problems into the hands of the Fed chair. And let's also put other safeguards into place as well. We need policy rules that address rising asset prices as they are inflating, we shouldn't rely solely upon the hope that Fed officials will recognize the problem in advance, explain their worries to the public, and be believed when they do so. Talk might work, but if it doesn't, then we'll have something else - a policy rule that kicks in automatically to mute escalating asset prices - to fall back upon.