A Lobbyist for the Rich...

A Lobbyist for the Rich...

Mr. Greenspan was an economic lobbyist for the rich, for large corporations and for Wall Street. That is the job of a Federal Reserve chairman these days. Like a good criminal defense lawyer or the ³expert witnesses² they hire, a good lobbyist makes a cover story believable. Mr. Greenspan crafted a myth that many people wanted to believe. The myth was that people ­ just about everyone ­ could get rich by going into debt, to buy property whose prices were being inflated by Federal Reserve policy of lowering interest rates and deregulating the financial sector to usher in a period of "wild finance."

Mr. Greenspan sponsored the confusion that increasing asset prices constituted ³wealth formation.² It was not the kind of wealth that Adam Smith meant in The Wealth of Nations. Posing as an enemy of ³inflation,² he tried to make people love one particular kind of inflation: asset-price inflation. The distinguishing feature of asset-price inflation ­ the bubble ­ is that it raised the price of property relative to labor¹s wages. This put the class war back in business ­ this time a class war by the financial sector against industry as well as against labor. It took more and more take-home wages to buy a house or a retirement income.

1) As the most vocal cheerleader for the Bubble Economy, Mr. Greenspan was more responsible than anyone else for loading the U.S. economy down with debt, leaving a legacy of negative equity in his wake. For almost the first time in history, people thought that they could get rich by borrowing to buy assets that were rising in price. This was the essence of America¹s Bubble Economy. Mr. Greenspan made America LOVE inflation ­ at least, asset-price inflation. The myth that he created was that people should treat their houses like a piggy bank. But borrowing is NOT like drawing down a bank account. It leaves a legacy of debt ­ that must be repaid. And while prices for real estate and stocks may go down, the debts remain in place. Lowering interest rates enabled a larger debt to be carried, by a given rental income. Lowering down payments, and even giving "reverse mortgages" where banks agreed to lend borrowers the interest, is what Hyman Minsky called the "Ponzi phase" of the credit cycle.

...and a Tax-Raiser

2) His main role as economic lobby for his financial clients was anti labor. Although he claimed to support cutting taxes to "spur markets," he played a major role in raising taxes for most wage-earners. He did this as head of the Greenspan Commission in 1982. The rhetorical ploy he suggested was to pretend that Social Security and health care should be treated as user fees, not as part of the overall budget. This freed the wealthiest tax brackets from having to finance Social Security for the bottom 90 percent of the population. Mr. Greenspan happily approved the Bush tax cuts of 2002 ­ but later, professed to be shocked, shocked, to find that there was gambling going on and the cuts on the higher tax brackets led to a large budget deficit, and recommended that the government cut back Social Security and medical care expenditures to pay for the tax cuts that benefited the upper brackets ­ his constituency.

3) In the above respects, Mr. Greenspan was the architect of dollar devaluation, by flooding the economy with low interest rates. He put short-term stock speculation and bank lending over the dollar¹s long-term stability. But then, finance always has lived in the short run.