I was so disgusted with Alan Greenspan when he testified before the House Oversight Committee. I had always held the hope that he was a free market man and that he would do the right thing in order to protect markets. I hadn't paid enough attention to him and what he had been saying all along.Alas I was wrong.
What was Greenspan's fatal flaw?
I went back to the article he wrote in 1962, "Assault on Integrity" which appeared in Capitalism: The Unknown Ideal, published by The New American Library in 1966.
"Since the market value of a going business is measured by its money-making potential, reputation or "good will" is as much an asset as its physical plant and equipment. The loss of reputation through the sale of a shoddy or dangerous product would sharply reduce the market value of the company, though its physical resources would remain intact.
"Reputation, in an unregulated economy, is thus a major competitive tool.... It requires years of consistently excellent performance to acquire a reputation and to establish it as a financial asset. Thereafter, a still greater effort is required to maintain it: a company cannot afford to risk its years of investment by letting down its standards of quality for one moment or one inferior product; nor would it be tempted by any potential 'quick killing.'
"Government regulation is not an alternative means of protecting the consumer. It does not build quality into goods, or accuracy into information. Its sole 'contribution' is to substitute force and fear for incentive as the 'protector' of the consumer. At the bottom of the endless pile of paper work which characterizes all regulation lies a gun. What are the results?
"To paraphrase Gresham's Law: bad 'protection' drives out good. The attempt to protect the consumer by force undercuts the protection he gets from incentive. First, it undercuts the value of reputation by placing the reputable company on the same basis as the unknown, the newcomer, or the fly-by-nighter.
"The government's 'guarantee' undermines this necessity; it declares to the consumers, in effect, that no choice or judgment is required - and that a company's record, its years of achievement, is irrelevant.
"Regulation - which is based on force and fear - undermines the moral base of business dealings."
So, Greenspan understood that government intervention into markets takes away the businessman's concern for his level of quality in every respect that he is responsible for in a completely free market.
Thus, if Greenspan knew that the businessman didn't have to worry about quality in the same way, what was he to do? He had but one choice. Force the businessman to provide whatever quality he identified as missing.
But this would then change the businessman again as force always removes responsibility. The necessary end result would have to be totalitarianism - total economic planning and regulation - in short, total enslavement of the businessman.
Greenspan's fatal flaw was that he did not go into his position as regulator of finance as a totalitarian from the outset.
Thus we witnessed the spectacle of a tiny little coward. A coward, no matter what he has done to cause a businessman to act without the same responsibility that he would in a free market, would always blame the businessman as greedy. And that's what he did.
Ayn Rand's nickname for Alan Greenspan when he was a part of her circle of intellectuals was The Undertaker. So apt.
Cartoon by John Cox. Here.
2 comments:
Of course, had he been consistent from the outset, he would not have been selected. And, he would not have been able to ride the coattails of Rand, posing as a free marketeer, having been published in her book. The unexcusable evil of his actions is that he blamed the greed of the businessman as if he were the cause in the matter. Greenspan's own actions, sanctioning the removal of responsibility from the businessman by force, was the root cause.
When are these government bozos going to learn that every time the government announces that it is taking action, the markets go south? When will it occur to them that the problem is not the market but the government and the way it spends the peoples' money? Pretty soon, the account will be overdrawn and these idiots won't have any of our money to spend because we'll all be unemployed. All they have to do is just stop "taking action" and we'll figure things out. As long as they keep plundering our economy with these "social programs" nothing will be right. Now we've elected the very fools (Democrats) whose philosophy (socialism) caused our very economic crisis. Do you remember when social spending programs actually made the economy better? "Spreading the wealth" is not a way of making things better since the wealth has to exist before you can spread it and when you spread it around, then the people who know what to do with their money can't spend it wisely (in investment). "Spreading the wealth" is the surest way to spread the poverty. Our economy needs production and for that we need the government to stay out of the economy. We need a free market, yes, the very market that Obama claims needs more regulation. When was the last time government regulation made things better?
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