It’s strange that anyone would still want to know what Alan Greenspan thinks. Yet the Financial Times, which is hardly a mouthpiece for the 99 %, recently published an Op-Ed by Alan Greenspan that blamed income inequalities on: “globalization and innovation.”
So says the former head of the Federal Reserve, who turned out to be a well- paid consultant to Wall Street and the leading cheerleader for deregulating greed. Greenspan-era deregulation returned America to the same laissez- faire economics and totally unfettered free markets that caused the first Great Depression (and now this one - the 2nd worst since 1776).
Greenspan is correct in that innovation is to blame for income inequality – far more so than globalization. But that’s only if Greenspan was referring to the financial instruments that were “innovated’’ on Wall Street.
Greenspan himself thought such investments served the betterment of mankind:
"By far the most significant event in finance during the past decade had been the extraordinary development and expansion of financial derivatives. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it – a process that has undoubtedly improved national productivity growth and standards of living.’’ --Alan Greenspan, Chairman, Board of Governors of the US Federal Reserve System, April 2005,
So Greenspan promoted financial innovation – and received substantial outside income as a consultant to Wall Streeters. His beloved financial investment-derivatives created wealth for no one but the Wall Street “innovators.” It did not and does not produce the kind of capital formation necessary to produce good paying jobs.
Certainly all economists ought to have been aware of the economic distinction between financial investment and real investment. In “Economics Explained,’’ Lester Thurow, then Dean of MIT’s Economic Department, and Robert Heilbroner, two of America’s most respected economists, explained this distinction in simple terms.
Yet this common- sense distinction was ignored by disciples of the Chicago School of Economics and numerous prominent and Nobel Prize-winning economists. Economists who promoted the supply side - "trickle down" - laissez faire, maximization of profit self serving theories from the Social Darwinism era of robber-barons.
Greenspan’s charge to deregulate was just what the titans of Wall Street wanted - considering his government prominence as one of the most respected economists in America. But his conflicts did not stop his leading role in the fight to deregulate greed! The ethos to deregulate financial markets began with Ronald Reagan and has not stopped since.
Discount stock trading caused Wall Street profits to go south. And the mid 80s signaled the turn to financial investment. Something had to be done to protect the estates in Connecticut, in the Hamptons and the multifloor homes on the Upper East Side. So there was a flurry of activity -- vulture investors, greenmail, mergers and acquisitions and leveraged buyouts. But nothing created profits as fast as egregiously leveraged virtual reality – thus the birth of financial derivatives.
The financial derivatives blew up like an Empire State Building would without any foundation. Derivates are still a nuclear reactor waiting to blow without control rods in place. Reason from Japan. Think about our financial tsunami of 2008, which has not been properly understood or addressed.
Financial reform is reform in name only. And we are told that reform could weaken the economy. Whose economy - the 99% or the 1%?
To continue on the deregulated path Greenspan created for financial innovation will just make the rich even richer. Not the rich who grow businesses or the rich who care about the welfare of employees, but the rich who are greedy sociopaths feeding still on the velocity of fees from derivatives too complex to explain.
Greenspan was the co-architect of the first stage of irrational exuberance flowing from Wall Street; and the father of where we are now. So does it make sense to care what Greenspan thinks?
Henry Schoenberger is the author of the new book – How We Got Swindled by Wall Street Godfathers, Greed & Financial Darwinism ~ The 30-Year Against the American Dream; including a foreword by David Satterfield, the former business editor of the Miami Herald and 2 times Pulitzer Prize-winner. www.howwegotswindled.com