Greenspan helped blow up capitalism. China saved it
Long-reigning Fed chair personalised the fanaticism of a US system that triggered two worldwide economic crises
De mortuis nil nisi bonum dicendum est. Since I don’t really know Latin and am not a Roman, I am going to speak very ill of Alan Greenspan, the long-reigning chairman of the US Federal Reserve, who died last week aged 100.
No one particular policymaker was entirely responsible for the real estate market collapse in the United States that triggered the last global financial crisis. But Greenspan bore more responsibility than most.
In US congressional testimony in 2008, Greenspan made a confession of sorts. “I have found a flaw,” he said. “I don’t know how significant or permanent it is. But I have been very distressed by that fact.”
We now know it wasn’t just a flaw but many flaws, which were pretty significant; some could be permanent. Not only did the monetary policy he engineered accumulate risks in the system over many years, he made sure the necessary regulations needed to contain those risks were reversed or never put in place.
For that, he provided the insidious ideological justification against financial supervision. The result has been serial bubble-blowing, leading to what we see today in the United States: the rich get fantastically richer while the poor get poorer.
The case of Greenspan shows monetary policy – and economics in general – is never politically neutral, but can be highly regressive in terms of the distribution of wealth.