Monday, June 13, 2011

Alan Greenspan, "The Flaw", Laissez-faire, and Moral Hazard

Newsweek reports:

In the fall of 2008, with the global economy in shambles and panic spreading throughout the financial system, a seemingly humbled Alan Greenspan—the former chairman of the U.S. Federal Reserve—appeared before Congress and admitted the unimaginable: there was a “flaw” in his world view that had prevented him from foreseeing the worst credit crisis in American history.

And so begins The Flaw, David Sington’s new documentary about the origins of the financial crisis. The movie, which opened in London last week, makes a compelling argument that the nature of American capitalism has changed in recent decades, giving rise to unstable levels of inequality and a mistaken belief in the self-correcting power of free markets. The Flaw focuses largely on the housing market and offers a far less blistering critique of Wall Street than Inside Job¸ Charles Ferguson’s 2010 Oscar-winning documentary. Yet in both films, Greenspan, who spoke with NEWSWEEK at his office in Washington, D.C., is cast in a similar role—as someone who personifies much of what went wrong with the economy...

Despite his 2008 mea culpa, Greenspan has largely remained steadfast in his faith in laissez faire, arguing against the government’s stimulus package and recent financial regulation. As Congress continues to fight over long-term spending and the future of entitlements, it is precisely this sort of stubborn libertarianism that has enraged Greenspan’s critics and once again cast a spotlight on his legacy.

read the article

Anthony Gregory on the meddling Fed: When All You Have is a Hammer

Murray Rothbard on Greenspan (writing in 1987)

Greenspan's real qualification is that he can be trusted never to rock the establishment's boat. He has long positioned himself in the very middle of the economic spectrum. He is, like most other long-time Republican economists, a conservative Keynesian, which in these days is almost indistinguishable from the liberal Keynesians in the Democratic camp. In fact, his views are virtually the same as Paul Volcker, also a conservative Keynesian. Which means that he wants moderate deficits and tax increases, and will loudly worry about inflation as he pours on increases in the money supply.

There is one thing, however, that makes Greenspan unique, and that sets him off from his Establishment buddies. And that is that he is a follower of Ayn Rand, and therefore "philosophically" believes in laissez-faire and even the gold standard. But as the New York Times and other important media hastened to assure us, Alan only believes in laissez-faire "on the high philosophical level." In practice, in the policies he advocates, he is a centrist like everyone else because he is a "pragmatist."

As an alleged "laissez-faire pragmatist," at no time in his prominent twenty-year career in politics has he ever advocated anything that even remotely smacks of laissez-faire, or even any approach toward it. For Greenspan, laissez-faire is not a lodestar, a standard, and a guide by which to set one's course; instead, it is simply a curiosity kept in the closet, totally divorced from his concrete policy conclusions.

read the essay

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