Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

Saturday, November 01, 2008

Crazytalk on Greenspan

Posted by Simon Halliday | Saturday, November 01, 2008 | Category: |

I have read many things on the financial crisis, on Alan Greenspan's confessed amazement at the 'self-interest' of bankers, and so forth.  However, this article from Z-Magazine by Frederic takes that cake as the best piece of crazed codswollop that I have read about Greenspan and the financial crisis as a whole. 

I came to Z-Magzine through an interest in Chomsky and reading his book Understanding Power, some of which I thought was good and insightful, some of which I thought was a bit odd and some of which I thought was simply wrong. Anyway, Clairmont's article, to which I was referred by a Z Magazine newsletter is just crazytalk. 

He goes on about the bourgeosie, about failing capitalism, and uses superlatives in every location possible.  He characterizes Greenspan as the 'criminal prime mover'.  Greenspan's policies were 'cold blooded' and 'deliberately designed to enrich a specific parasitical class'. Ok, so we know that he was the governor of the Fed during the period in which securitization and derivatives became prevalent.  I can refer you to a host of literature which provides evidence indicating that these financial innovations, although having contributed to our current problems, are, nevertheless, worthwhile financial innovations which will serve individuals and society in promoting well-being and success.  Not to mention the fact that Greenspan was head of the Fed for a period iduring which inflation was remarkably stable and unemployment was stable and low.  I understand that there were conflicts between the Clinton Administration and Greenspan over what should de done during the early 90s, and that Greenspan's unitary view of 'inflation bad' limited the policy options for government. I don't see why these are necessarily indicators that he is criminal or the servant of a 'ruling caste oligarchy'.  I wish to not that I understand the arguments that inflation can, but does not necessarily, benefit those who hold wealth over those who do not hold it, but I remain unconvinced that Greenspan was specifically trying to propagate class warfare and undermine the working classes to the benefit of the 'rule parasitical class'. 

None of the criticisms provided by Clairmont even give credit to the fact that a market-integrated society is generally held to be more successful - and to promote greater integration and cooperation - than non-market integrated societies (see Henrich et al (2004) on this and Paganelli (forthcoming)).  Admittedly, as Adam Smith argued in the Wealth of Nations, greedy mercantilists could undermine social needs (see Paganelli on this).  So some market-capitlism is good, too much is probably bad (recalling that the term capitalism was invented after Smith by Makepeace Thackeray in his novel The Newcomes in 1854 (ht: Gavin Kennedy).

Thus there are probably non-linear relationships between market integration and say 'favourable' outcomes.  Think about a parabola with a maximum at some point of market integration on the y-axis and 'favourable outcomes' on the x-axis and you get the idea, though there could be other non-linearities.  So let's accept that there may be non-linearities in positive outcomes resulting from market integration.  This result does not imply that financial innovations that are created by individuals in that market are necessarily bad. I hear far too many people saying 'we must get rid of securitization', or 'derivatives are our worst enemy'.  This is not the case.  What we need is for financial regulation to catch up with financial innovation so that securitization, when it is done, is done in a transparent manner such that the people know what they are purchasing and can run the numbers, and such that the poor are still able to find innovative and new ways to obtain wealth and NOT be stopped from doing this by people being paranoid about financial tools. That is what these things are: tools.  They are not the antichrist.  They are not the anti-market.  They are simply tools that testosterone driven financiers used recklessly.  In the hands of intelligent and regulated financiers they could do wonders.  Again, nothing about this from Clairmont.

Ok end of rant now.  I just become annoyed when people misunderstand their Marx and Smith and misportray the events that are going on in the world now. 

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