Alan Greenspan told a House Committee investigating the deluge in finance today of his shock that banks could not regulate themselves. Greenspan then went on to say that he had "found a flaw" in his "free market" world view, adding "I don't know how significant or permanent it is. But I have been very distressed by that fact." When asked by committee chair Henry Waxman if "your ideology was not right, it was not working," Greenspan added Absolutely, precisely....the reason I have been shocked because I have been going for forty years with very considerable evidence that it was working exceptionally well."
Forty years? Exceptionally well? A flaw? Don't know how significant or permanent it is? These are the comments of the man who was Chair of the Federal Reserve, the the second most powerful executive position in the U.S., for eighteen years? And this ahistorical irrational and comical response to a disaster of this dimension is what he has to say?
First, Greenpan's statements make little historical sense because the deregulation that we are talking about didn't develop forty years ago during the Johnson administration but a generation ago in the Reagan administration, and not all at once. Maybe Greenspan forgot that because in the 1960s, he was a follower of Ayn Rand, whose Objectivist cult looked to free market Supermen,a sort of extreme right-wing individualist anarchism as far removed from reality as the extreme left collectivist underground of the Weathermen which Bill Ayers belonged to at the time. Of course, Randians were never connected to acts of violence against the government. Of course, But then again, Weathermen never served in cabinet positions, not to mention chair of the Federal Reserve.
The Savings and Loan collapse of that period which occurred when Paul Volcker, Greenspan's predecessor, was Chair of the Federal Reserve, might have suggested to Alan that there was a "flaw" in this kind of policy, but it apparently didn't. The decline in real wages, huge rise in income inequality, increase in human suffering that these policies visibly produced in the U.S. didn't factor into Greenspan's thinking either, since the great majority of the victims, particularly children, were either marginal or completely outside of a political process where less than half the eligible voters were voting and non voters were drawn overwhelmingly from lower-income groups whose living standards were deteriorating.
As I read Greenspan I see an interesting hybrid of man, someone who was smart on the specifics, know about the ins and outs of finance, but was totally out of it in terms of the larger picture, a "perfect fool" so to speak for those who would rob the system blind because he was completely blind to their abuses until they overwhelmed the economy--a bit like those in the 1920s Republican governments who didn't have to be bribed to hand over to corporations public property because they believed in a kind of divine right of business.
Perhaps if Greenspan had not gone from being a not so successful Jazz saxophonist to being a follower of Ayn Rand, he might have discovered that the "flaw" in his argument was discovered by capitalist economists in the late 19th century, those who didn't need Karl Marx to explain to them that the way real markets worked had little to do with the theory of the a "self regulating" rational "free market" governed by a "law of supply and demand" where rational "economic man" ate fish when the price of meat was to high and then the price of meat would come down, and bankers invested their capital prudently to seek both the highest and the safest investment and those who didn't would run out of money and collapse just as the economic man who continued to eat meat would run out of money and starve. That system, even without bailouts for the banks or food stamps for the economic man, never had any relationship to reality with the rise of mass production industrial capitalism
Alan Greenspan won't lose his home and I am sure can protect his pension. His distress will be very different from the millions who have for years faced the economic consequences of the policies that he championed, the "forgotten millions" of the 1980s and 1900s whose jobs and pensions were casualties of what some called "the Reagan revolution." Now, when those millions are on the brink of multiplying, when a greatly weakened and under supplied safety net is about to face a huge increase in demand for services, Alan Greenspan's economic theories and policies should be returned to the pre Ragtime nineteenth century world where they already considered relics by many.