B ob Woodward set for himself a rather difficult task. In his book, Maestro, he attempts to paint a heroic portrait of a purposefully ambiguous Federal Reserve Board Chairman Alan Greenspan. Although Woodward does a competent job of explaining some of the more Byzantine aspects of the operations of the Federal Reserve, his effort falls too often into hagiography. Even if one accepts the portrayal of Greenspan as a maestro beautifully and skillfully conducting the orchestra of the economy, one has to be concerned about any system so critically dependent upon having a rare expert. Create too much money and too many dollars will chase too few goods and inflation results.
Inflation adds noise to economic transactions and calculations making the economy less efficient.
In the long run, inflation suppresses real economic growth. Miscalculate on the other side and the country experiences deflation and possible recession. Unfortunately, measuring the money supply is problematic. With various monetary instruments from currency, to bank deposits, to deposits in mutual funds, defining and quantifying the monetary supply has become more and more difficult. The Federal Reserve Board also relies on indirect measures to divine the present and future states of the economy.