The most important news, by far, yesterday was Alan Greenspan's testimony before the House Committee on Oversight and Govt Reform. Sadly, this testimony really didn't get the attention it deserved. While the NYT has a FP picture of Greenspan testifying, the article about his testimony is on the FP of the business section. Elsewhere, Palin's wardrobe budget seems to have gotten more attention.
For 18 years, Greenspan exercised power over our economic system that few other Fed Chairs have ever matched. This aging Ayn Rand groupie was the toast of the town in DC and in NY. Bob Woodward wrote a flattering bio that called him "the maestro" of the American economy. Bob Rubin spent his entire Tenure as SecTreas under WJC working hand in glove w/ Greenspan.
There were those discordant voices in the maestro's symphony over the years. Paul Krugman, to his eternal credit, was one of them. On the Hill, however, such voices were few and far between. Greenspan's one aggressively consistent opponent all along was VT's Bernie Sanders.
In 1999, then-Rep. Sanders challenged Greenspan during a House Banking Committee hearing. Their exchange on minimum wage was illustrative of that confrontation:
REP. SANDERS: Thank you very much, Mr. Chairman. Ironically, I was going to ask a similar question to what Mr. Castle asked over on the minimum wage.
Some of us see the positive signs in the current economy in that real wages for low income workers have finally gone up after many years of stagnation and decline. And I'm surprised, therefore, about your response to Mr. Castle, because one of the positive things -- Some people would argue that one of the reasons that wages for low income workers have gone up is an increase in the minimum wage. And you and others argued two years ago when we fought to raise the minimum wage from four and a quarter to five-fifteen there'd be massive, large-scale unemployment among workers. Unemployment is now at a record low. So my question is, do I gather -- do you still oppose raising -- the president would like to raise the minimum wage by a buck over a two-year period. Many of us would like to go even higher. Are you still opposed to raising the minimum wage?
MR. GREENSPAN: Well, I still think it's a bad idea, because as I said to Mr. Castle, you don't see the effects when you have a huge demand for labor. The real crucial way to test whether it is a desirable thing to have is when the economy is slack. And as far as I can judge, and the data that we tend to find quite compelling, is that teenage unemployment does go up with the minimum wage. And if that is, in fact, the case, I think it's a disservice to the younger people.
Greenspan and Sanders had a similar exchange before the House Financial Services Committee in 2003:
Now, today you may not have known this -- I suspect that you don't -- but you have insulted tens of millions of American workers.
You have defended over the years, among other things, the abolition of the minimum wage -- one of your policies -- and giving huge tax breaks to billionaires.
But today you have reached a new low, I think, by suggesting that manufacturing in America doesn't matter. It doesn't matter where the product is produced. We've lost 2 million manufacturing jobs in the last two years alone; 10 percent of our work force. Wal-Mart has replaced General Motors as the major employer in America, paying people starvation wages rather than living wages, and all of that does not matter to you -- doesn't matter.
If it's produced in China where workers are making 30 cents an hour, or produced in Vermont where workers can make 20 bucks an hour, it doesn't matter. You have told the American people that you support a trade policy which is selling them out, only working for the CEOs who can take our plants to China, Mexico and India.
You insulted Mr. Castle. Mr. Castle, a few moments ago -- a good Republican -- told you that we're seeing not only the decline of manufacturing jobs, but white-collar information technology jobs.
Forrester Research says that over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to India, Russia, China and the Philippines.
Does any of this matter to you? Do you give one whiff of concern for the middle class and working families of this country? That's my question.
GREENSPAN: Congressman, we have the highest standard of living in the world.
SANDERS: No, we do not. You go to Scandinavia, and you will find that people have a much higher standard of living, in terms of education, health care and decent paying jobs. Wrong, Mister.
GREENSPAN: May I answer your question?
SANDERS: You sure may.
GREENSPAN: Thank you. For a major industrial country, we have created the most advanced technologies, the highest standard of living for a country of our size. Our economic growth is crucial to us. The incomes, the purchasing power of our employees, our workers, our people are, by far, more important than what it is we produce.
I submit to you -- may I?
SANDERS: (inaudible)
GREENSPAN: The major focus of monetary policy is to create an environment in this country which enables capital investment and innovation to advance. We are at the cutting edge of technologies in the world. We are doing an extraordinary job over the years.
And people flock to the United States. Our immigration rates are very high. And why? Because they think this is a wonderful country to come to.
SANDERS: That is an incredible answer.
In both of these public appearances, Greenspan politely but firmly totally dismissed the points raised by Sanders. Privately, I suspect that his dismissal was much more graphic and much less polite. Sadly, almost all of the other Very Serious People (VSP) shared Greenspan's views. Sanders was widely viewed as a gadfly whom those funky tree huggers and granola eaters in VT kept sending to the House and ultimately to the Senate. In the real world occupied by the VSP who were watching their portfolios continually multiply, Sanders was viewed as an aging 1960's relic.
Needless to say, recent events have visibly changed that whole equation. This testimony of Greenspan's yesterday was highly instructive:
"Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief," he told the House Committee on Oversight and Government Reform.
There is not the least bit of evidence that Greenspan felt the least bit of disbelief about his laissez-faire views in either 1999 or 2003. To the contrary, he was clearly convinced that the lessons he learned at Ayn Rand's knee could and should be applied to the national and even the world economy as a whole. His apparent Road to Damascus conversion is clearly of recent vintage.
What's equally instructive of yesterday's proceeding is the views expressed by the committee members:
Now 82, Mr. Greenspan came in for one of the harshest grillings of his life, as Democratic lawmakers asked him time and again whether he had been wrong, why he had been wrong and whether he was sorry.
***
"You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others," said Representative Henry A. Waxman of California, chairman of the committee. "Do you feel that your ideology pushed you to make decisions that you wish you had not made?"
Mr. Greenspan conceded: "Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact."
I've always respected Henry Waxman, and I agree 100% w/ what he had to say yesterday. It seems, however, that the proceedings addressed who left the barn door open long after all of the horses had scattered. Other than Sanders, it is hard to recall others on the Hill who pushed Greenspan on his core assumptions during either the tech bubble or the housing bubble. Given the importance of FIRE (finance insurance and r/e) to the campaign coffers of so many members of both parties, few wanted to bite the hands that were so generously feeding them.
VT's prophet who was so often w/o honor outside of progressive circles offered his economic prescription in HuffPo on Tuesday. He suggests a "Rebuild America" plan that includes the following elements:
We should make a major financial commitment to improving our roads and bridges. We must develop energy-efficient rail lines for both freight and high-speed passenger service and promote public transportation. We need to bring our water and sewer systems into the 21st century. In terms of job creation, every billion dollars invested in the physical infrastructure creates 47,000 new jobs.
We should make a major financial commitment to energy efficiency and sustainable energy. With a major investment, we could stop importing foreign oil in 10 years, produce all of our electricity from sustainable energy within a decade, and substantially cut greenhouse gas emissions. We can make the United States the world leader in the construction of solar, wind, bio-fuel and geothermal facilities for energy production, as well as creating a significant number of jobs by making our homes, offices, schools and factories far more energy efficient.
We should make a major financial commitment to education. We must end the disgrace of millions of children under five attending totally inadequate child-care facilities while millions of other families are unable to afford a college education. We must invest in new classrooms, new computers, energy-efficient heating and cooling systems. That would not only create jobs, but relieve some of the burden on the regressive property tax.
In a matter of days, we will see the Dems regain the WH, gain a real majority in the Senate, and expand their House majority. Today's events on world financial markets make it clear that this development will not happen a moment too soon. The time has long passed for a return to Rubinomics. Rubin was Greenspan's chief enabler in the Clinton era, and his philosophy deserves little more credence than Greenspan's at this point. It's past time for something much bigger and much bolder.
The defining economic ethos that largely guided us through 4 presidencies over 28 years is now officially dead. One of that ethos's leading proponents admitted that fact in his testimony yesterday. It's time to start over w/ a new ethos, and one of the most severe critics of that ethos has offered us some excellent ideas about that new start.