Alan Greenspan's latest views on capitalism are rather sensible...
THE FEDERAL RESERVE has goals for unemployment and inflation. Targets. And it moves its policies around in order to achieve its goals, writes Bill Bonner in the Daily Reckoning.
Of course, it doesn't necessarily hit its goals. Still, we're supposed to believe that by trying to hit them it somehow encourages them in the right direction...
Most people believe they are successful. Which makes us wonder. Maybe the Fed should set goals for other things? Weight-loss goals, for example.
The idea is that by changing interest rate and banking policies the Fed actually influences inflation and employment. So, there's a logic to thinking that the Fed should set targets and try to hit them. Trouble is, if it could really change things for the better, why does it put up with an 8.5% unemployment rate now — four years after the subprime crisis began? Why doesn't it exercise its magic to bring the rate down...?
Well, we all know the answer. It can't. Once you've taken interest rates down to zero...and announced that you'll leave them there for the next three years...what more can you do? Drop money from helicopters? Right!
But no point in getting ahead of ourselves. Right now, interest rate policy doesn't work. Because the money supply is expanded by retail and commercial bank lending, not central bank lending. The Fed lends money to the money-center banks. They're happy to take the Fed's money. But that doesn't mean they will multiply it out by risking it in the economy.
So, for the moment, they might as well set a fat goal...too...
Excuse us as we pause in admiration and shock...
We had a sneaking suspicion that Alan Greenspan, former Fed chief, was not as dumb as he pretended to be. When he was on the job he could barely say a straight sentence. Probably because he didn't really believe what he was saying.
Since he's been unemployed, he's begun to speak more clearly. In the Financial Times last week he shared an opinion on capitalism which is actually among the best in the series. In it, he makes a good point. Anti-capitalists are not really annoyed at capitalism. What bothers them is "crony capitalism:"
"Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favors on private individuals or business. That is not capitalism. It is called corruption."
Or you could call it zombification...or geriatric capitalism...or, as Kurt Richebächer used to call it, "degenerate capitalism." But it's not real capitalism.
The 'greed' that preoccupies Occupy Wall Street demonstrators is not a feature of capitalism, Greenspan points out. It's a feature of human nature. He might have pointed out that socialists are just as greedy as capitalists. They are just more corrupt. Rather than get their gains by honest deception, they get it by brute force — by using the police power of government to take it from others.
Greenspan provides an example of a corrupt system, designed to protect the wealthy from competition — immigration law. It keeps out qualified foreigners willing to work for less:
"The H1B program is in effect a subsidy for the wealthy, a policy that is anathema to the supporters of capitalism."
He goes on to suggest that "improvements" to capitalism, such as those at the World Economic Forum in Davos last week, are not likely to be good ones.
Good on you, Alan.
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