Posts Tagged ‘Crooked Timber’


Black comedy with Alan Greenspan

March 31, 2011

A couple days ago, Financial Times gave some column-inches to Alan Greenspan to bash the Dodd-Frank financial regulation bill. Not, of course, for being insufficient in its strictures (see Matt Taibbi for that), but rather for being too heavy-handed and market-distorting. The money statement, and the one that has elicited unending amounts of scorn and hilarious snark, is this:

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

To which Dean Baker says,

Just in case you have forgotten, we have 25 million people who are unemployed, under-employed or have given up looking for work altogether because Alan Greenspan did not understand financial markets and the economy. Perhaps the FT will have a column offering advice on disaster management from Michael Brown.

Crooked Timber dedicates a whole post, plus a gazillion comments, to mocking the “with notable exceptions” thing. I haven’t read them all because the sheer number of them is overwhelming, but there’s some pretty funny stuff in there. “With notably rare exceptions, Germany remained largely at peace with its neighbors during the 20th century.”

It’s also interesting to note that the vast majority of commenters on the original FT piece are largely derisive of Greenspan, and of FT for giving him undeserved airtime.

Finally and more substantively, the thrust of Greenspan’s argument appears to be that the financial sector is just too complicated to be regulated. This is, needless to say, a troubling line of argument, but not one that’s entirely uncommon. In fact, World Bank President Bob Zoellick essentially made a similar argument when he gave a talk here last year, saying that he had the World Bank put pressure on the Basel III financial regulatory talks so that the resulting regulations would not be an “overreaction” that resulted in unintended consequences. About Dodd-Frank, Greenspan says:

The financial system on which Dodd-Frank is being imposed is far more complex than the lawmakers, and even most regulators, apparently contemplate. We will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot be readily anticipated.

I understand the idea of unintended consequences as an argument against sweeping reforms, but when the system to be reformed is so thoroughly broken, one would think that something more than cautious baby steps is called for.

Flying Whale