Quote of the Day “Those of us who have looked to the self-interest of lending institutions to protect shareholder equity, myself included, are in a state of shocked disbelief.” Alan Greenspan, last week
Henry Waxman asked former Fed chairman Alan Greenspan last week if his conservative ideology pushed him to make decisions about the economy he now regrets. Greenspan said “yes, I’ve found a flaw.” The flaw is astoundingly well summed up in today’s quote of the day. It seems so simple, yet very few of us saw it, and even though the great Warren Buffett DID see it and told us about it, none of us listened. The individuals running our great financial institutions were looking out for themselves, and did not see their interests as aligned with those of their companies. They made deals to create short term wealth and illusory wealth to appear on balance sheets. In return, they received millions of dollars in bonuses. What happened after they cashed their checks was none of their concern.
This is the achilles heal of conservative economic theory. Conservatives, including TB in past times, have always believed that if the top echelon of wealth holders were doing well, it was in their interest to keep a well funded underclass to keep the machine churning out ever more wealth. The middle class would benefit from successful American businesses by buying their stock and getting an ownership interest in the economy they were supporting. Too much regulation by government, often derisively termed “interference”, would simply siphon off corporate profits, leaving less for the middle class to share. So the interference was removed over the course of thirty years or so, bit by bit, piece by piece. Even most Democrats went along with the effort, notably Bill Clinton.
But we all overlooked the most obvious pitfall. We equated the businesses themselves with the individuals who run them. The businesses, in the end, have failed–GM, AIG, Merrill Lynch, Wachovia, Bear Stearns, and so many more. The men who ran them have not failed. Like DB Cooper, they jumped out of the planes with all the cash and a golden parachute. But DB at least had the courtesy to leave the plane functional when he leapt. These guys destroyed the engines, then jumped.
Someone once famously said those who ignore history are doomed to repeat it. We ignored the lessons our grandparents and great-grandparents learned back in 1929, and now history is repeating itself to a large degree. There is a reason for government regulation. Sure, it slows down business growth to some extent. But it stops many of those individuals who would loot businesses and their shareholders in their tracks. It shines light on their schemes. Just like a football referee, the government is never popular, especially when its presence in the game is obvious. No one likes a game marred by too many holding flags, and its often said there is holding on every play. Similarly, in regulating business, the government will undoubtedly throw too many flags sometimes, and miss other times it should’ve thrown one. But without the refs, the game is just a street fight over a ball. And without government regulation, our economy is just a street fight over control of wealth. It’s time all conservative thinkers admit their flaw in philosophy.
There is common ground between American liberals and conservatives. That is that most everyone agrees the ultimate goal is to make increased wealth available to all. There is legitimate difference of opinion on how that should be accomplished. Conservatives must first admit, like Greenspan, that all of their assumptions are partially based on a faulty premise. And liberals, poised to have a chance to implement their own ideas, must remain aware that a faulty premise most likely lurks inside their own ideology. Both sides must learn to concede the points on which they have been obviously wrong and use the other side’s ideas to improve the collective action our government must take. I haven’t seen that in many years. I hope the next administration controls its hubris enough to remember this lessen from the dying conservative movement.