Greenspan: Repel the Calls to Contain Competitive Markets

Would you be surprised if Alan Greenspan said regulation is bad and free markets are good?:

Repel the calls to contain competitive markets, by Alan Greenspan, Commentary, Financial Times: ...Globalisation is at the root of the past decade’s unprecedented surge in world economic activity. ... The economic edifice – market capitalism – that has fostered this expansion is now being pilloried... Regulation, the alleged effective solution to today’s crisis, has never been able to eliminate history’s crises. ... When the current crisis emerged, it was assumed that the weak links would be unregulated hedge and private funds. The losses, however, have been predominately in the most heavily regulated institutions – banks.

We may not easily confront or accept the price dynamics of home and equity prices, but we can fend off cries of political despair which counsel the containment of competitive markets. It is essential that we do so. The remarkably strong performance of the world economy since the near universal adoption of market capitalism is testament to the benefits of increasing economic flexibility.

It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. ... The danger is that some governments, bedevilled by emerging inflationary forces, will endeavour to reassert their grip on economic affairs. If that becomes widespread, globalisation could reverse – at awesome cost. [More here.]

Update: "Stations of the Bubble":

(A meditation inspired by Alan Greenspan’s sententious warning against financial regulation.)

Mileposts:

Oct. 2004: “Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States”

June 2005: “Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications.”

And let’s not forget this classic call:

October 2006: “I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out,”

Comments

[LindaMBeale]

Lack of regulation of mortgage brokers and the derivatives that fueled securitizations, failed oversight of the big mortgage lenders Fannie and Freddie, Congress's cooperation by eliminating the legal rules preventing insurance, investment banks and deposit banks from merging--all of these are responsible for this financial crisis, together with the dominance of the "greed is good" mentality beginning with reaganomics and sponsored by right-wing think tanks and exploited by Big Oil, Big Banks, Big Pharma, and Big Ag. The friedmanites like Greenspan tend to overlook the fact that pure free marketarianism tends to lock in wealth for the elite and lock the bottom into endless poverty. Keynesian economics, with its acknowledgment of the need for markets AND for government oversight, leads to a much more balanced economic system that benefits ordinary people.

[ken melvin]

So, the US constitution.

[JKH]

He continues to cement his record as a poor forecaster. What's noteworthy here is just how bad his writing has become. Its remarkable. What on earth is the point of that oblique paragraph about stock prices and discount rates? Too much time in the bathtub.

[jim]

'Greed is good'. Gordon Gekko however would not care for the indeterminate risks taken that led to our current crisis of greedy ignorance. I would call it stupidity, but the perps probably scored well on their Stanford-Binet tests. They failed to incorporate the behavior of their peers in their statistical decision making process. The few that did, having observed the herd behavior around them, are rich. I am not among them.

[Robinia]

Amazing that he can so self-confidently and assuredly assert that governments should not tell "free markets" what to do.... isn't that an awful lot like telling the markets (and the governments) what to do? And he's not even King of the macroeconomies anymore, just an old man whose been wrong about how the world is going a lot recently....

[ScentOfViolets]

I don't think his writing has gotten any worse; what's changed is that instead of combing the entrails of his words for oracular pronouncements, people are very rightly treating them like something Chauncey Gardiner would say.

[Lafayette]

Pathetic old man trying desperately to repair the cracks that are appearing, finally, in his haloed image.

It is not astonishing that Greenspan should not be concerned with his historical legacy, his life's work. It was so much ballyhooed out of proportion to reality, that even he believed it. Apparently he still does.

The birds have come home to roost. But, our hero remains in denial.

[robertdfeinman]

I consider the relative lack of comments on Greenspan's statement a sign that people no longer think what he says is worth considering. Perhaps it is just Greenspan fatigue, or perhaps it is starting to extend to the entire libertarian camp, or maybe it's just August and everyone is off enjoying the nice weather...

[kthomas]

Is it just me, or am I the only one who wants to see Greenspan get his old butt kicked? The arrogance of this man.....