Here is a link for an incredible article. It is somewhat confusing because this guy talks in ways that are hard for us to understand. For instance, commenting on why our economy hasn’t recovered yet he writes:
But the London Interbank Offered Rate spreads on overnight index swaps and credit default swaps of financial institutions have not returned to the modest pre-crisis levels. Fears of insolvency have not, as yet, been fully set aside.
Uhh - say what? Yes, this is Alan Greenspan! He is the only human I know who talks with so much authority and knowledge that the rest of us just nod our heads and think to ourselves, “Right – whatever he said.”
But in this article he says some things that are really important. He describes the path back. He says the problem is a general lowering of faith in our financial institutions. The quickest way back is a recovery in the housing markets. The wrong way back is for governments to try to shape the battlefield by posing restrictions on certain segments of the market. And he says some things about other paths – that are not the paths back. And then he sums it up with a remark that only he can make.
Remember in my last article I mentioned that Obama wants to take money from oil companies and give it to people? Greenspan makes a comment that Obama needs to understand.
It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. In reality, the past decade has seen mounting global forces (the international version of Adam Smith’s invisible hand) quietly displacing government control of economic affairs.
That is Greenspan talk for - Politicians need to understand that historically they have never had the clout over the economy as they think they had. And going forward they will have less. That doesn’t mean that they cannot impose stupid rules that would exacerbate the existing problems. They certainly can, but the reality is that our economy simply needs a hands off approach for the quickest recovery.
Since Ben Bernanke took over as head of the Federal Reserve, things have been tough for him. He is a very good mechanic. He has done well, choosing what to do and when to do it. But I have really missed the Alan Greenspan authority in that position. I hope that the media picks up on what he said. And I hope they take it to heart.
3 comments:
I like Greenspan. And I'm all for Adam Smithian economics. Although my eyes glazed over when I attempted to read that article.
Freedom Fighter, wouldn't you agree that we need regulations and revenue streaming (taxes and fees) to avoid abuses and control the direction of our economy?
Do you agree with the criticism against Greenspan that he should have applied more regulations to better limit the rogue lenders and their predatory lending schemes that sent our housing market into the hole?
In that same manner, doesn't it make at least some sense to use excess profit taxes on oil companies as a stick?
Obama doesn't want to tax big oil just to make money for the government and throw cash in the streets. The problem is, Texas oilmen have been in and around the White House since 1988. And oil companies have enjoyed every minute of their economic freedom all this time.
Now it's time to make a huge course correction. We cannot continue burning fossil fuels at our current pace. We can all agree on that.
Obama's threat to tax them is an attempt to finally get them out of their confy beds and tell them, "It is better that America begins changing the way we consume energy right now. And one way or another, you are going to help."
If Obama and a Democratic controlled congress prompts big oil to voluntarily and dramatically boost their alternative energy research budgets (or in Exxon's case -- START ONE!) then they may not need to tax.
I agree, taxing big oil's profits is not a good general economic model. (And while I'm at it, neither is borrowing money from China to give us all econ stim. checks so we can buy plasma TV's made in China.)
But this 'change' that conservatives and cynics scoff at is real and it has to happen sooner rather than later. Even the Rockefellers see it.
But it apparently will require a sharp prod to push the big movers of the energy economy. Their 'summer of love' is over.
--Kevin
I'm not a smart man, but it seems to me that taxes get passed on. If I decide I want to make $2 for every widget I make over the costs of production, shipping, advertising, and taxes...then I'm going to make $2. If the government thinks $2 is to much and taxes me extra....I still want to make $2. So I'll increase the price to cover the increase in taxes. Hello? Taxing "windfall profits" (whatever the hell that means) will only add to the cost of goods. Drill here, drill now. Increase supply overcomes increased demand, thus lower prices....and dems or reps don't have to meddle in our lives a bit. Thanks for the post, but man, I'm starting to "hackle up" some. I'm glad this is your gig. Nice writting and keep it up.
I just heard from an economist that we attempted to tax oil profits in the 1970's and it didn't work.
OK. Fair enough.
But beware of drinking McCains Kool-Aid of "drill here, drill now".
First: Drilling now means getting one drop of oil five to ten years from now if we're lucky to find it right away. Hardly a short term solution.
Second: The classic economic model of "Increased supply overcomes increased demand, thus lowering prices" would be great if it applied to our current oil situation. But it doesn't. Demand for oil is far outpacing supply; and there isn't enough oil on our shores or in the artic to satisfy current consumption.
Obama said something the other day in his energy speech. He said, "It's not going to be easy."
Conservation, effective environmental controls, new auto standards, Alternative energy requirements . . . we're going to feel it in our lives. And it may get bumpy.
But the huge crowds for Obama in this country and around the world don't lie. People are willing to do the hard thing AGAIN, just like they were when JFK said we were willing to face difficult challenges because "they were hard." And then he sent a huge expensive smoking gas guzzling rocket into outer space.
But the point is the same. Young people are looking for a challenge to be the next "Greatest generation" like their parents or grandparents of WWII.
I'm pointing my finger straight at you cynical conservatives who just want to lazy-faire (That's a fancy French term for 'just letting things happen') and let the economy fix itself.
The problem is you are choosing to let strong players in the economy continue to leverage it to their advantage.
Oilmen's way of solving all the world's problems is to do one thing: Drill for more oil. And for short-termed economic minded conservatives, that's the easy way out.
Investing in cleaner alternative energy costs too much money. It doesn't fit the current economic model. Therefore, don't do it.
The cycle has got to stop. We HAVE to change. And it's going to hurt. But if we do it now, our grandchildren won't be forced to do it more painfully in 50 years. And they'll be calling us the next greatest generation.
--Kevin
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