Sir, If I read him correctly, Alan Greenspan claims to know of no instance where incremental monetary policy has defused a bubble without crushing economic activity (“We need a better cushion against risk”, March 26), leaving the reader to infer that the recent and ongoing financial meltdown is preferable to such crushing.
What he leaves unmentioned is the role of fiscal policy in defusing bubbles, indeed in preventing their emergence in the first place.
A simple example will suffice. In the UK, capital gains tax is levied in principle on profits realised from financial market transactions, but not on the sale of private real estate (provided the object of the sale has been the vendor's principal place of residence).
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