The other day I said that I didn't think good economic policy revolved around creating confidence. I got a few questions on that, so I want to put a finer point on it.
The government should strive to achieve the greatest amount of certainty that it can while maintaining some flexibility to react to conditions in an unpredictable world. They should do this primarily in the areas over which they have explicit control, with federal taxes, spending, and regulatory regimes topping the list.
Efforts to create confidence too quickly devolve into the notion that the government will come to the rescue when times are tough. There may be times when government intervention is appropriate, but this sphere has a way of expanding seemingly without end.
Greenspan's confidence building contributed to the tech stock bubble and various federal interventions in housing, including Freddie and Fannie, played a role in the housing bubble and subsequent mess.