Have been listening to debates about the conflict in Georgia over the week-end. There has been much wailing and gnashing of teeth about Putin’s disregard for democracy. In a similar vein, western commentary about President Hu Jintao’s Olympic Games is never complete without some tut-tutting about democracy and human rights in China.
Yet these leaders have in reality much in common with Alan Greenspan, former chairman of t he US Federal Reserve, who is held in the greatest esteem by western commentators. He came to London recently to promote his book, and I attended one of his sessions at Chatham House. The deference from the British political and media establishment was nauseating. The Prime Minister had already honoured him with a knighthood, so deferential is he. Yet this is Greenspan on democracy, as expounded in the columns of the Financial Times last week:
“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. Since early this decade, central banks have had to cede control of long-term interest rates to global market forces”
So democratic societies, under Alan Greenspan’s watch, lost control, through their governments, over ‘economic affairs’. And central bank governors ‘have had to’, Greenspan insists (who forced them to?) raise their hands and surrender a key lever of control over the economy to ‘global market forces’. What are central bank governors for, then?
Greenspan is concerned that there is a “danger” and I quote that “some governments…..will endeavour to reassert their grip on economic affairs.”
Danger? Credit crunches/contracts or tightens – thanks to the reckless greed, deceit and fraudulent behaviour of global capital markets; banks (like Northern Rock, Fannie Mae and Freddie Mac) collapse, and innocent taxpayers, unaware of the sacrifice they are making, bail out their managements and shareholders. To the tune of hundreds of billions of dollars. (See the IMF’s ex chief economist, Ken Rogoff, on this subject, here). What use the invisible hand here?
Debts pile up, interest rates (no longer controlled by democratic governments) rise on these debts, they pretty soon become unpayable, and so thousands of families are evicted from their homes. Immense pain ensues. Families break up, people treat their pain with drugs and alcohol, women and children are abused, young men are knifed to death, old ladies are attacked….Society’s close-knit fabric of security is torn asunder. What help the invisible hand here?
Small businesses borrowed to invest, the interest on their loans ratchets upwards (thanks to Adam Smith’s ideas apparently) they go bankrupt, people are thrown out of jobs, which means they can’t pay their debts, which destorys banks. The financial sector plunges into meltdown.
But worry not, the invisible hand is nigh…and thank god, sighs Greenspan with relief – democratic governments are no longer in control of economic affairs.