Satire (or truth?) of an Alan Greenspan speech on ‘Economic flexibility’
To the National Association for Business Economics Annual Meeting, Chicago, Illinois – 2005
Today I will blow smoke up your ass and tell you why feeding Americans to the Economy and doing away with our social safety net is good for the Masters of the Universe.
Back when word traveled by cargo ship and carrier pigeon, there was no need for Government to protect people from economic fraud. Then the Industrial Revolution started to happen and Adam Smith was channeled to protect the profits of Robber Barons.
With absolutely no concept of multinational corporations and instantaneous communication, Adam Smith had no idea that the Hidden Hand would not function as he postulated it would. Robber Barons captured and bribed elected officials and convinced them that Adam Smith’s Hidden Hand was a good idea despite the fact that the size, scale and speed of an Industrial economy was totally unimaginable to a colonial economist in 1776.
After a few years of irrational exuberance, the Hidden Hand led us into a Great Depression.
Despite the Great Depression, and subsequent dismissal of the Hidden Hand as a viable economic model, the Titans of Industry were able to spend hundreds of millions on propaganda and bribes for elected officials in order to get people to stop protecting themselves with the institution of government.
The measured, Visible Hand of Government of, by and for the People that got us out of the depression, protected the people from exploitation by their bosses, bank and market fraud, famine, and a host of other potential pitfalls of modern day society.
This social safety net was chipped away at by the persecuted Titans of Industry for the next 3 decades.
When the economy started to struggle as US Oil production topped off and we were forced to rely on other countries for oil, that’s when we struck. Starting in the 70s, congress bowed to the pressure of business interests and began ‘deregulating’ everything – transportation, communications, energy and financial services industries. The goal of this scheme was to promote competition, which was supposed to raise our standard of living. De-regulation was coupled with a reduction in trade Bailiffs and Terriers.
As a consequence, the United States, then widely seen as a shining city on a hill, became the land of the paper towel and fast food. Joseph Schumpter of Harvard gave us the term ‘creative destruction’ – the continual scrapping of old technologies to make way for the innovative. In that paradigm, standards of living never really rose despite the fact that new metrics and technologies told us they did. We had a firesale to do away the stuff that made us great at what we do and laid off a ton of people who unable or unwilling to relocate to the third world to work for peanuts.
Through this process, wealth is created, incremental step by incremental step, as high levels of productivity associated with innovative technologies displace less-efficient productive capacity and these spoils were given to the rich. This model presupposes the continuous churning of a exploitative economy in which the new displaces the old and the rich are all that matter.
As the 80s progressed, the success of the scam of transferring money upward was apparent – turning citizen into consumer by removing government protection made it easier to rob and exploit them as they were forced to work harder for less.
Beyond deregulation, innovative technologies, especially information technologies have contributed mightily to enhanced exploitability. A quarter of a century ago, companies often required 10 men to do the job of one guy at a computer terminal, robots work longer, faster and harder than men and we don’t have to pay them at all!
Deregulation and information technologies have joined, in the US and elsewhere to advance the exploitative abilities of the financial sector, but creative accounting may turn out to have been the most important contributor to our current Bubble Economy.
Historically, banks have had to bail themselves out of trouble, as they were responsible for their losses. When they could not do so, the government stepped in. But given recent de-regulation and subsequent hidden leveraging through asset-backed securities, collateral loan obligations and credit default swaps, the banks can hide their risk until the bubble explodes and forces a government bailout. Or they can just threaten to blow themselves up and take government money.
Embarrassingly deficient pricing options and financial mumbo jumbo developed by mathematicians along with fast computers and telecom have significantly increased risk and reward for behavior that, before regulation, was entirely illegal. The new instruments of risk dispersal have enabled the largest and most sophisticated banks, in their credit-granting role, to divest themselves of that credit risk and responsiblity by passing it on to institutions with far less leverage, like the American Citizen and their insurance companies and retirement funds.
These increasingly complex financial instruments have contributed to the development of a far more exploitative, wasteful and hence plutocratic financial system than the one that was dismantled 25 years ago. After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, nobody stepped in to stop the irrational exuberance and protect the people from waste, fraud and abuse.
If we have attained a degree of exploitability that can keep the money flowing to the rich despite the most significant shocks – a proposition that was just fully proven in the Winter of ’09. The ability of the economy to make money for the rich has been enhanced and rich people will be happier.
Governments today, although still more concerned with the General Welfare of their people during the age of Slavery and the Gilded Age are rediscovering the trappings of feeding the economy the lives and livelihoods of their people. We are also beginning to recognize that Global Exploitation is easier with the help of the Hidden Hand.
Through the careful use of political bribes and corporate propaganda, governments in recent decades have stopped protecting their people from exploitation by the marketplace. We appear to be perverting Adam Smith’s notion that exploitation and domination of people by the market and market titans is somehow capitalism. This greater tendency towards exploitation, hiding the truth and self regulation has made the stability of the economy impossible to gauge, even by experts.
It is important to remember that the nature of the market is complex, nobody understands it and things move too fast for governments to act appropriately.
Being able to outsource government functions to private industry is a valuable policy asset. Turning over vital government functions and paying more from them has helped our economy grow. This is a clear demonstration of the benefits of an increasingly exploitative economy.
We weathered a decline on October 19, 1987, of a fifth of the market value of US equities with little evidence of subsequent macro-economic stress because we had regulations on the books to ensure proper oversight and management of the economy. Contrast this with the Stock Market Bubble’s bursting in 2000 – despite the massive waste, fraud, abuse and public outrage, nothing was done to keep it from happening again.
In perhaps what must be the greatest irony of economy policymaking, success at exploiting entire populations of people carries it’s own risks. There’s no such thing as a free lunch, and people know that. The good times can’t go on forever and the people are apt to lose their stomachs for risk or to get frightened by gloomy predictions which could lead to widespread exposure of toxic assets. Such developments apparently reflect not only market dynamics but also the all-too-evident alternating and infectious bouts of human euphoria and distress and the instability they engender.
Therefore, because it is difficult to suppress growing market exuberance with a seemingly stable economy, a highly exploitative system needs to be in place to manipulate the markets and to tilt the table back towards the wealthy when the shit hits the fan.
Relying on policymakers to pop speculative bubbles and to stop them from happening again is not an option. As the Federal Open Market Committee (FOMC) transcripts of the mid-1990s duly note, we at the Fed were uncomfortable with a stock market that appeared as early as 1996 to disconnect from its moorings.
Yet the significant monetary tightening of 1994 could not stop us from inflating the bubble. And after the repeal of Glass Steagall equity prices really shot up. The FOMC had the ability to stop this bubble, but it would have been bad for business and for stockholder and consumer confidence, so the band played on, for morale’s sake.
6 years after we saw the problem it appeared that we would have to do something drastic to counteract the euphoria that we allowed to spread because of our actions that were heretofore illegal. In short we would have to pop the bubble ourselves precipitating a recession and shining a bright light on formerly illegal and fraudulent activities. We decided to let the bubble grow and pop all on it’s own. We figured this would be better for rich people, given their superior knowledge, information and connections to markets, they’d be alright.
Exploitability is most readily achieved by fostering an environment of few rules and domination by the most powerful entities. A key element in creating this environment is exploitative labor markets. Many working people equate labor market flexibility with job insecurity.
Despite that perception, exploitative labor markets appear to promote job creation. An increased capacity of management to fire workers without excessive cost, for example, apparently increases companies’ willingness to hire without fear of unremediable mistakes. The net effect has been what appears to be a decline in the structural unemployment rate in the united states, and definitely cheaper labor.
Protection of People and trade, both domestic and international, from waste fraud and abuse does not contribute to the welfare of American workers. At best it is a short term fix at a cost of reduced wealth capturing by the economic elite. We need to make train and educate the recently fired, not protect them and their family from exploitative work practices.
Moving forward, I trust that we have learned durable lessons abotu the benefits of fostering and preserving an exploitative economy. That exploitation has been the product of the economic dynamism of our CEOs and firms that was unleashed, in part, by the efforts of corporate propagandists and their bought and paid for policymakers to remove public protections and promote plutocracy.
Although the business cycle has not disappeared, exploitation has made the economy less transparent and more efficient at transferring money to those that matter. To be sure this has created some new challenges for policymakers. But more fundamentally, a more exploitative economy has been key to the impressive growth in the standards of living and economic welfare of the wealthy elite so evident in the United States.