Lincoln Drill Hall

Sunday, 26 October 2008

Greenspan

It was an article in a magazine, the subject of which has bubbled to the surface of my mind periodically over the fifteen or so intervening years, from time to time really quite fiercely: an interview with the then Federal Reserve Chairman Alan Greenspan. The magazine was Newsweek, I think, and its text the safe, massive hand on the world’s economic tiller. The article was a eulogy. There had been times through the Bush and Carter administrations when Greenspan had appeared fallible; poor economic performance is hardly the badge of the successful Fed chairman. Yet once times began to look good he became the alchemist, the wizard of Oz; consumer lead demand was the answer and we will trust the banks not to lend too much.
In Friday’s Guardian (24 October 2008) the front page announces: ‘Greenspan – I was wrong about the economy. Sort of.’ It goes on to report Greenspan’s appearance before the congressional committee, how the long term cheer leader of deregulation, had found a flaw, got it partially wrong. Nils Pratley in Viewpoint is adamant that Greenspan must share the blame. Pratley’s style brims with irony: ‘it turns out that banking executives couldn’t be relied on to act in shareholder’s interests. They enriched themselves, didn’t understand the risks they were taking, and then brought down the roof on everybody. Golly, who could have predicted that?’
The answer, Mr Pratley, is that if any one did, they kept mighty quiet about it. Monetarism in the sense of controlled public borrowing; financial market deregulation and the imperative of debt funded consumer demand all conspired to ignite an economy that sped along for nearly two decades only to collapse in a heap. The point was that it was in no-one’s interests to question whether it worked; it worked only so long as people believed it did. As soon as belief wavered there was only ever one direction in which it could go.

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