The Deal Economy 2013

Home | Event | Blog | Awards

Print | Share | Discuss | Reprint

Greenspan offers his view from the mountain

by Robert Teitelman | Published January 26, 2012 at 1:30 PM

The elites, like the swallows of Capistrano, have flocked to Davos to get their tickets punched and their importance validated. And then there's the skiing. There are many strange things about elite status. It's so damn relative. There is always another room, another level, that your elite status can't get you into; this drives journalists, who mostly like to pretend they don't play such games, even as they scramble for the crumbs of access, crazy with ambivalence (see Felix Salmon's breakdown of the different statuses at Davos). And for most elite wannabes, their status must somehow be made public, but it must be done in an exclusive setting. They must indulge in some opacity, despite a professional belief in transparency -- inside outsiders, like Newt Gingrich. Davos, for all its pretensions, is fueled by that desire: We're inside! You're not! But you know we're here! We'll report back. The cosmic joke is that the ultimate elite status is the figure you either don't know or can't get near: the truly opaque figure.

All this is a recipe for status paranoia.

This is, frankly, a digression, and one that I seem to take every year at the sight of my colleagues eagerly jetting off for an event they claim to deride. But there's a deeper point. In the Financial Times today, Alan Greenspan makes another one of his post-Federal Reserve pronouncements, engaging in what the paper calls its "Future of Capitalism" series. That series has had some fine columns, but at its heart, as at the heart of Davos, there's a recurring tension between politics and economics, democracy and technocracy. No one seems to think capitalism is truly threatened. Yes, there are challenges and difficulties, but there is currently no alternative, unless you declare that any restraint on free markets represents the death, or imminent demise, of capitalism. Most pundits fail to separate capitalism, as an economic system, with democracy, as a political mechanism; despite China, they assume they're roughly the same. Just below Greenspan on the FT's op-ed pages, three "members of the economics working group at Occupy London" (like to see their business cards) claim they have embraced Hayek's "observation that distributed intelligence in a voluntary co-operative is a hallmark of a real economy," and go on to make the kind of policy recommendations that might have appeared in Obama's State of the Union. Clever. But cherry-picking Hayek is too clever by half. I assume Hayek was talking about distributed intelligence in markets, not as the Occupy movement argues, as a form of governance. The difference is important. The column captures the Occupy movement's blend of anarchistic politics and absurd or reformist economic ideas.

But onto Greenspan. The former Fed deity also reflects that tension between economic and political thinking, in a piece that reiterates all the themes we have heard, from him and so many others (including Hayek), before: Capitalism is better than communism, markets are better than state control over the economy, West Germany did a lot better than East Germany. Who can argue? Greenspan wanders through the decades since the Cold War ended, noting China's embrace of markets (ignoring the reality of state-owned enterprises), and the general rise in prosperity and material well-being. But grave threats loom: Capitalism remains embattled. "While central planning may no longer be a credible form of economic organization, the intellectual battle for its rival -- free-market capitalism -- is far from won." Why? Not because of the Chinese. But because some folks in the West -- hey, you guys from Occupy -- seem to think we should balance out market competition with what he sniffily refers to as "civility." Greenspan's use of civility is symptomatic. Most folks would suggest that the problem with market breakdowns is less a kind of euphemistic vulgarity than poverty, dislocation, lost hopes, inequality. Civility is awfully close to lousy taste and bad manners. Moreover, Greenspan embraces three unstated assumptions here: that free markets and "civility" are somehow not only antagonistic, but zero-sum; that bountiful capitalism since the Enlightenment has been characterized by pure free markets (the New Deal and post-war America and Europe never really happened); and that what matters most is what occurs over the very long term, say several centuries, rendering mere perturbations like the Great Depression or our own mess as noise.

In short, he's making another ideological declaration of belief. Still, he seems to feel he must at least mention current issues like greed, breakdown and inequality. Here he becomes philosophical. That is, he starts playing with words. Greed is human nature, not capitalism (yes, and Hayek is an anarchist). "The legitimate concern of increasing inequality reflects globalization and innovation, not capitalism," though he then veers to blame U.S. immigration law, which "'protects' many higher earners from skilled migrant competitors." OK. But then the underlying tension of this entire argument, between politics and economics and involving his own role as a free-market central banker, produces a gaping contradiction. The real problem here is not capitalism, he says, but "crony capitalism." And the real culprits of crony capitalism are those "government leaders, usually in exchange for political support, who routinely bestow favors on public sector individuals or businesses." He himself was "particularly depressed by the extent to which bankers, previously pillars of capitalist prudence, had allowed their equity buffers to dwindle dangerously as the financial crisis approached."

He was depressed? He was their regulator. He was their god. True, he retired in 2006, but that "dwindling" took place under his watch. He ignored derivatives; he couldn't be bothered by mortgage abuses; he used the central bank to reduce interest rates; he was a technocratic uber alles who made political choices. He was the very embodiment of the "government leader" who bestowed favors for political support. Does it make a difference, does it justify things, that he may well have done much of this (not all) for ideological reasons? Can he escape responsibility by taking the long view? Indeed, such a realization would normally lead to a re-evaluation of those beliefs -- or at least a deeper exploration of the complexities of the matter. But no. Greenspan remains on top of his mountain. The air is thin and the view is great. But is anyone really listening? - Robert Teitelman

Share:

blog comments powered by Disqus

Free preview

This is only a preview of The Deal's sophisticated coverage. Explore the real-time intelligence as researched and reported on by our team of financial journalists with a license to The Deal Pipeline. Click here for more information.

Meet the journalists

Robert Teitelman

Editor in chief

Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact

Movers & Shakers

Goldman, Sachs & Co. veteran Tracy Caliendo will join Bank of America Merrill Lynch in September as a managing director and head of Americas equity hedge fund services. For other updates launch today's Movers & shakers slideshow.

Video

Fewer deals despite discount debt

When will companies stop refinancing and jump back into M&A? More video

Free preview

Editor in chief

Movers & Shakers

Sectors