A couple of days ago, yahoofinance ran a
little article about Alan Greenspan predicting that Greece would ultimately have
to leave the euro. He is 88 years old, and is still viewed by the public
as a kind of financial wizard.
Greenspan was the most notable of the
economists who was "set up" to be a mouthpiece for the "new" supply-side dogmas
that the Reagan administration wanted to promote.
I am not a dog owner, but I am advised that
the humane and modern way to train your dog is to reward behaviors you approve
of, while ignoring those you don't. Apparently this also works well among
humans, as the super-rich used this same approach with Milton
Friedman, Alan Greenspan, Robert Rubin, Larry Summers, et
al. Since 1981, they were all rewarded handsomely, while the
old-school Keynsian economists were ignored. Larry Summers was Chief
Economic Advisor to both Bush II AND Obama. That he was put in this
position under Bush II is no surprise, but it was alarming that
President Obama decided to keep him. Recently, Obama
was considering Summers to be Bernanke's replacement at the Fed, but
mercifully, a few liberal Senators had had enough, and got the President to
back down.
In 1981 Reagan moved to the White
House. He and his rich backers were irritated that their income taxes
were too high, and they wanted to have the rates lowered. This was either
a cynically intellectualized process that would be appropriate for people who
were poorly-socialized, or, it might have been (in the case of Reagan himself)
just a knee-jerk reaction of a high-income individual who didn't really
understand the bigger picture. At any rate, Reagan became a true-believer
in the necessity for lower income (and estate) tax rates for the
rich. In 1982, therefore, one of his first agenda items was to get
Congress to lower the top marginal income tax rate from 70% to 50%.
In 1987, he finished the job, as Congress lowered the top marginal rate
from 50% to 28%. The US would now be, if not in perfect flat-tax
territory, then at least in "near" flat-tax. After letting this
system run for 32 years, now we have a wealth distribution in the US that
is similar to Haiti's - - most of the real money has sorted to the top, where it
is locked up tight. This trend was also happening around the world.
I have read recently that in 2015, the top 1% of the world's population will,
for the first time, own 50% of the total wealth. Of course, this situation
is not sustainable.
To accomplish his tax goals, Reagan needed
to persuade the public that it would be a good idea to lower income tax
rates. But they needed a "theory," and they needed "experts." A few
people had come up with the idea that letting the rich keep more of their income
would somehow stimulate the broader economy, although there is - and
was - no empirical data to support this claim. Nevertheless, it was
an appealing thought, and easy to package and sell. For this, it is
assumed that the rich are owners, and leaders and genius-entrepreneurs.
And, after all, they graciously consent to give us our jobs. This is,
however, all false logic. The real motivation for lower tax rates is
that most people simply resent having a % of their income
taken away from them, and the rich tend to resent it most of all.
It is well-known that Alan Greenspan kept a
copy of Ayn Rand's book "Atlas Shrugged" at his bedside for many years.
Rand's premise was that a few talented, enterprising people actually kept the
whole economy running, and if they were constrained by the "group" (meaning, in
practice, regulated and taxed by the government) in too heavy-handed a way, they
might just simply drop out, and then the entire economic system would
collapse. So, we all needed to be afraid of that possibility.
This book - which should have been
discarded, and was discarded by any really thoughtful person many years
ago, remained at the top of Greenspan's reading list. Probably this was
because Greenspan himself was a kind of Walter Mitty personality, being
very timid himself, he needed something "powerful" to read, in order to live in
vicariously in the rough and tumble of life. Greenspan was an academician
who put all his savings in Treasuries. If you want to someday be Fed
Chairman, this is not a bad idea, as it keeps any taint of conflict of interest
at bay. But it is the most risk-averse strategy you could possibly have
with your money.
So Greenspan, armed by Rand's bogus
theories, was a perfect candidate for the rich to REWARD, while they ignored the
old-line Keynsian economists. His career skyrocketed, and he ultimately
found himself at the center of the world's money supply. Another of his
ideas (along with Friedman) was that free, unregulated markets were so
inherently "intelligent," that they were very stable, meaning that "bad
behavior" in free markets would soon be corrected by losses accruing to those
engaging in such. However, even a quick read of economic history of the UK
and the US during the Industrial Revolution should have made it crystal-clear
that unregulated free markets are actually, by nature, HIGHLY UNSTABLE.
When they run unhindered, they are subject to vicious boom and bust cycles -
which are fundamentally destructive to human activity.
Look for the movie - if you can find it -
"An Inside Job." There is a segment within that makes it clear
that the rich set about to reward / ignore in order to promote their bogus
supply-side dogmas. Actually, I shouldn't use the word "bogus" because
there is ONE thing that supply-side does extremely well. It causes wealth
to sort to the top, and this happens very, very fast. And that is exactly
the point.
So Greenspan et al were hired by the Reagan
(Bush, and, sadly, the Clinton) teams to turn the US economy into a vast
experiment for supply-side. Unfortunately, the 2008 Crash was the
predictable result. Greenspa - by now safely retired as Fed
Chairman - was immediatley hauled before Congress and asked "what
happened." Right away, he said something like "Well, I suppose that the
ideas that I based my whole career on turned out to be false." In other
words, supply-side was a destructive failure. There was a gasp, and a
hush, but Congress did practically nothing to reverse Reagan's policies.
Congress is still avid for free trade, flat tax, privatization, and deregulation
- - the four foundation policies of this foolish dogma. The underlying
reason they did nothing is, of course, that the rich are still in control, and
they don't want any changes back to the pre-1981 system. Supply-side is
still "king."
At least Greenspan was honest. And
this kept him from ending his career in total ignominy. So, he is still
rattling around, and people still are in awe of him, for all the wrong
reasons.
Nevertheless, nobody is wrong all the time,
and lately he was at a conference in Europe, and commented that it was his view
that Greece would inevitably have to leave the euro. And that there was no
way that they could ever control their current debt level. It was
surprising to me that he would stick his neck out so far on this topic.
However, I happen to agree, and have been saying so for months. It is
likely that Italy, Spain, and Portugal will also have to exit. The logical
euro-zone countries are France, Germany, Belgium, the Netherlands, and
Scandinavia (if they want to be a part). Southern Europe doesn't belong in
a common currency with the North, because the South is resource-poor by
comparison. They will be at a continual disadvantage with the North, and,
once united under a common currency, will continually be at lower employment
levels.
But REWARDS are powerfully
motivating. And I think "arf" and "woof" are common
parlance whether you happen to be an American, Asian, or European
dog.
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