Greenspan’s Monumental Admission of Methodological Error
(Apologies for the emphatic language below – but this does deserve emphasis)
Alan Greenspan made the most important statement of his career and one of the most important statements of any “free market” economist ever. When it’s significance becomes fully recognized it may have the potential to atone for some of the damage his naiveté has caused over the past two decades. It’s important for President Obama (who is said to have high respect for economists) to understand Greenspan’s error.
The Statement was to the effect that he was wrong when he didn’t favor regulation and believed the markets would automatically solve such problems because he trusted the people in control of the financial system to act in their long run self interest, and that of their shareholders. That’s why he supported unregulated free markets, which have led to the financial debacle and World economic meltdown.
What’s remarkable about this is that same erroneous belief is THE key pillar of all free market ideology. Without this, the Austrian School, and most economists collapse into rubble, just as our financial system has collapsed.
It’s hard to accept that economists could really believe such nonsense; I suspect that much of their religious attitude toward markets stemmed from their regular paychecks from corporations benefiting from such dumb, unsupported beliefs. These are people who conquer higher math, obtain doctorates, influence public policy, and who in Greenspan’s case pontificated for 18 years as Chairman of the Federal Reserve System with an adoring press. Remember how in total cryptic confidence, he once told Congress that if someone thought they understood what he was saying, then they probably didn’t hear him correctly!
As I wrote years ago, when that absurd insult was directed at our Congress and country, a giant hand should have reached down out of the skies, grabbed him by the scruff of the neck, and tossed him out of the halls of power.
The economists and other such true believers, time and time again were warned and alerted to their error. I personally did some of the warning on this very point in 2002, in my book The Lost Science of Money. For example in Chapter 16, where it became necessary in the public interest, to destroy the moronic support for “free banking” by Austrian School and Libertarian economists. (Free Banking in brief means allowing bankers to create as much money out of thin air, as they can palm off onto the markets.) They used the same stupid “trust” argument to support the idea that this would be a good practice.
Among the six reasons why they were wrong, I pointed out what was obvious to me and should have been obvious to them:
“Problem # 4: They think that they have theoretically “proven” that bankers can be trusted to act honestly, because they say in the long term it will build banker’s reputations and therefore be profitable. They don’t consider that often in the short term the potential for loot is so great that it will be taken without regard to honesty. They also ignore that reputation can be influenced by public relations expenditures and advertising and political power. That in fact is the history of business immorality. Men don’t always do the right thing when they are tempted by the opportunity to grab a great amount quickly.”
Interested in problems # 1 to 3, and numbers 5 and 6? You should be! They are in Chapter 16 of the Lost Science of Money book. Without it, the entire edifice supporting the market worship fetish of the Libertarians and the Austrian School evaporates.
The free market ideologues may be hopeless. Just look at how they are reacting to the current financial debacle. Though the retired Greenspan admits his error, these characters-perhaps needing to keep drawing those paychecks- rather than admit error tried to claim that the system collapsed because there is too much government regulation! But there is no evidence of that and there is overwhelming evidence to the contrary! That’s understandable. But what about the real suckers, the Victims who are still passionately supporting this flawed ideology? Pray for them?
No matter – “evidence” is not an important part of their thinking process. To them it’s all about ideology; or keeping those checks coming. Fine! Let them further discredit themselves over this. But it’s past time to remove from polite discussion, this belief and confidence in markets to automatically work to benefit mankind. More mature heads must dump such junk not into history’s dustbin of errors, but into the toxic waste garbage pail of vicious anti human practices, either purposely designed to harm and hold back the development of humanity in order to enrich the few, or just happening to do that so well by accident! Time to bury those destructive beliefs with Ayn Rand, rather than let them hang around rotting like stinking corpses.
The “free marketeers” will keep up their pretense as long as the media and the rest of us allow them to – and as long as those bribes – er paychecks – keep flowing to them! That means until the media start describing them with the kind of rough but accurate plain talk I’ve used in this brief essay. And it means we must allow the criminal perpetrators who pay them, to go out of business rather than bailing them out and allowing them to control our media! The only kind of bailouts they should be looking for are the ones to get out of jail until their trials.
Neither does it mean we go to other stupidities in the other direction, in a pendulum like swing into the nonsense crowd on the opposite end; for example to nationalize the banks. Instead, nationalize the money system, not banking! That is done by 1) Incorporating the Federal Reserve System into the US Treasury where all money is created by Government as money, not as credit by banks; 2) Ending the fractional reserve Bank accounting privileges which allow banks to create money; and 3) Our Government Issuing new money for our infrastructure, including the human infrastructure of education and health care. It really is that simple folks. The hard part is making it happen politically. These points are incorporated in the American Monetary Act, which is viewable at the American Monetary Institute website at http://www.monetary.org. Please stay in touch and let us know your views.
Director, American Monetary Institute
P.S. The University of Chicago felt compelled to send an economist to argue on the Chicago Tonight Show, in July (2009) that the University’s Economics department’s free market ideology, was not the cause of the banking and monetary crisis. They are still in denial, because to a substantial degree, that ideology facilitated the operational and structural fraud that brought the World’s economies down. At least Alan Greenspan has admitted his error.