Either way, in my humble opinion, it is not fair to present such examples in order to attack the Fed for repeating what were in the past thought of as “miracle results”. It is true that Fed Chair Volcker snuffed out stagflation, with the US economy reviving slowly afterwards. In the second case, despite Alan Greenspan’s “brilliance”, I think he was a bit lucky, in that it was a moment when China became a major supplier of cheap consumer goods, partly due to a pool of low-cost labor, and flooded first the US and later global markets with inexpensive “Made in China” products. This entailed very low inflation for quite some time, and supported the Fed’s record era of low inflation and positive economic growth – thus“ the Great Moderation.”
The late Professor Walter Heller of the University of Minnesota, President Kennedy’s Chairman of the Council of Economic Advisers, is remembered for quipping that good economic policy depends on good theory, good judgment, good data…. and good luck. This is not intended to dim my admiration of the brilliance of Fed Chairs Volcker and Greenspan, since I do respect their adroitness, but simply to put things in a right perspective, so as not to blame or praise anyone blindly.
In fact, market players should be more realistic in their daring moves, employing better analytical tools and being willing to bear risks as well as facing up to uncertainties that might exacerbate a problem. Better theories and concepts, as well as more accurate and sophisticated data processing techniques, would help. Nevertheless, we must accept as reality that aside from legacy risks, there are still uncertainties that crop up, creating an environment where no one would have any clue as to what is going on or in which direction it would tend to lurch. This is the factor of uncertainty, the “black swan” swimming into sight: no one knows what it is and what it might result in, period. One may only hope for some good luck that sometime comes to the rescue and sometimes does not. That is the truth, no matter whether it is fortunate or not. And that is the reality of market workings.