Monday, October 13, 2008

Conservative Fiscal Policy as Grand Larceny

Alan Greenspan, The Alpha Dog of Crony Capitalism

The economy is undeniably THE story these days, with everybody on the edge of their seats wondering if it's really going to 'crater' or will the global intervention that's going on save the day.

When Jon Stewart had Greenspan on The Daily Show (Sept. 18, 2007) he brought up a very interesting point, and I think he nailed Greenspan on his low-interest policies. What Stewart points out is that the existence of the Fed means that there isn't really a free market at all. And after letting Greenspan pontificate on the supposed fundamentals of monetary policy Stewart smoothly demonstrated who was the smartest person in the room.

And it wasn't Greenspan. Not by a long shot.

Alan Greenspan Bums Out Jon Stewart

(Those of you outside the United States can watch this on Canada's Comedy Network.)
Stewart: "So the Fed - or whoever's leading it - could in fact, if they wanted to, goof on all of us."
Greenspan: "They wouldn't want to"
(Greenspan pontificates at length on fiscal policy - why there is a need for a central bank. Stewart goes along playing dumb to a point. Then he pounces.)
Stewart: So we're not a free market then. There's an invisible 'benevolent' hand that touches us.
Greenspan: Absolutely, you're quite correct. To the extent that there is a central bank governing the amount of money in the system that is not a free market and most people call it regulation.
Stewart: And so we're really just deciding , , because when you lower the interest rate and drive money to the stocks that lowers the return people get on savings in effect.
Greenspan: Yes indeed.
Stewart: So they've made a choice 'we would like to favor those who invest in the stock market and not those who invest in a bank, that helps us.'
Greenspan: God, no. That's the way it comes out, but that's not the way they think about it.
Stewart: (laughs) Explain that to me, because it seems to me that we favor investment but we don't favor work. The vast majority of people work. They pay payroll taxes and they use banks. Then there's this whole other world of hedge funds and short betting - it seems like craps - and they keep saying, "no no no, don't worry about it, it's the free market, that's why we live in much bigger houses." But it really isn't, it's the Fed. Or some other thing, no?
Greenspan: I think you'd better re-read my book.
Stewart: Alright. But am I wrong in saying that we penalize work by making a choice?
That last question never really got answered, Greenspan going into a rant about psychology versus economic models, admitting that the latter were pretty much useless in the face of the former. To which Stewart replies, "You've just bummed the shit out of me." Which I guess is why they call economics the Dismal Science.

The important point here is that Jon Stewart went up against the presumed alpha dog of conservative economics and utterly defeated him, tearing down a central pillar of laissez faire theories. The markets are not free and fair; no way, no how. The 'invisible hand' is in fact under the control of certain interests, who make choices that enrich some segments of society at the expense of others. The Fed functions as an economic weapon of mass destruction in the Great War on The Middle Class. And frankly it undermines the real fundamentals of the economy in doing so.

This was all predicted a long time ago. I remember reading an article in The Economist back in Reagan's reign warning of the very mechanism Stewart points to. I remember it so well because they called Reaganomics by a term that was new to me - the Rentier Economy. Essentially it's the same thing - a system that rewards ownership above work. The Economist recognized that such a situation was a recipe for disaster, and undermined the strengths of a free market. Indeed they likened the system to a type of feudalism - whereby the wealthy landowners forced the peasants to work, then reaped the benefits of their toil come harvest time. Under such a system their was little incentive for the peasant to work very hard, because he knew the fruits of his labors would just be stolen from him. Nor was there much incentive for the Lords of the Manor to compete or introduce new efficiencies. They already lived on opulent estates in houses with more rooms than they could occupy, and had lots of money to spend on gambling and hookers. It's no wonder that free market economics replaced this system of corruption and greed. The problem is that the free market has devolved into a system of crony capitalism, which I and others have recognized as little better than a system of corporate feudalism.

Crony capitalism ignores a fundamental of economics that's been with us forever, perhaps best expressed by a president known for his honesty.
"Labor is prior to, and independent of, capital.
Capital is only the fruit of labor,
and could never have existed if Labor had not first existed.
Labor is superior to capital,
and deserves much the higher consideration."
-- Abraham Lincoln --
A healthy economy must MUST MUST be based on production somewhere along the line. Flipping real estate and trading paper 'instruments' just don't feed the bulldog. Ignoring that is what has led America into a spiral of debt, with the balance of trade increasing every year, and both the government and the general public living beyond their means in the blithe expectation that the bills will never come due. Worse than that is the fact that the base of paying jobs, particularly in manufacturing, has been eroded by outsourcing during the same time, undermining the ability of the economy to pay back the debt. This is an issue to which Mr. Greenspan seems to have turned a blind eye and a deaf ear, actually going on record as denying that this is harmful.

Bernie Sanders confronts him on the issue in this video. Watch this, Bernie rips him a couple of new ones. You want to start setting America on the right path? Hand Nancy Pelosi's gavel over to Bernie. (Not sure on the date of this exchange, sorry.)
The country clubs and the cocktail parties are not real America. The millionaires and the billionaires are the exception to the rule. You talk about an improving economy while we have lost 3 million private sector jobs in the last two years, long term unemployment has more than tripled, unemployment is higher than it has been since 1994, we have a $4 TRILLION national debt, 1.4 million Americans have lost their health insurance, millions of seniors can't afford prescription drugs, middle class families can't send their kids to college because they don't have the money to do that...CEOs make more than 500 times what their workers make, the middle class is shrinking, we have the greatest gap between the rich and the poor of any industrialized nation - and this is an economy that is improving? I'd hate to see what would happen if our economy was sinking.

...Today you reached a new low, I think, by suggesting that manufacturing in America doesn't matter. It doesn't matter where the product is produced. We lost 2 million manufacturing jobs in the last two years alone, 10% of our workforce. Walmart has replaced General Motors as the major employer in America, paying people starvation wages rather than living wages, and all of that doesn't matter to you?
This is by no means the only time that Greenspan has been confronted by people willing and able to shred his theories. Naomi Klein confronted him on the phone over his definition of corruption and crony capitalism on this segment of Democracy Now dated Sept 24, 2007. In this case she had no argument with his definition, just his refusal to admit that it applied in spades to the Bush administration. And NOBEL PRIZE WINNER Paul Krugman (Congratulations!) pinned a lot of blame for the current crisis on Greenspan and McCain economic adviser Phil Gramm in this interview with NBC's David Gregory. Do a search on Alan Greenspan at YouTube, I'm sure you'll find lots of similar material proving that Greenspan is more ideologue than theorist, and his ideology has driven the country off of a cliff.

CNN's Anderson Cooper has gotten a start on a new feature: 10 Most Wanted: Culprits of the Collapse, where he introduces America to the usually anonymous 'Captains of Industry' who have most contributed to the current economic crisis. So far positions 8, 9 and 10 are occupied by SEC Chairman Chris Cox, Lehman Brothers' Richard Fuld and AIG's Joe Cassano respectively. It will be interesting to see if Alan Greenspan ends up occupying one of the top spots, if not THE top spot. You could also expect to see Treasury Secretary Henry Paulson and the current chairman of the Federal Reserve, Ben Bernanke, along with John McCain's chief economic advisor (and likely Treasury Secretary should McCain defy the odds and get elected) Phil Gramm in top spots. If not, there is no justice. And these are the fools, damned fools and deluded popinjays that the Republican Party would put in charge of finding a solution.

Sad, but true.
UPDATE: More insight into this story is to be had at Ice Station Tango.
Roll to the pole!

AUTHOR'S ENDNOTE: The picture at the head of this post is of George W. Bush presenting Alan Greenspan with the Medal of Freedom. Which, if I was just trying to point out that Greenspan was a useless asswipe, would have sufficed by itself. A picture really is worth a thousand words. I could have saved myself a lot of research and composition. Alas, I didn't even go looking for the picture until I'd put in the hours of work, not least of which was creating the transcript segments from the Daily Show video and the one with Bernie Sanders. Oh well, c'est la vie.

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