Probably the single most famous act of conservative economic legerdemain was pulled off by former Federal Reserve Chairman Alan Greenspan. He convinced the Congress and President Clinton that we no longer needed the New Deal-era Glass-Steagall act to keep financial giants like Goldman-Sachs in line. (See William K. Black's January 16, 2012 AlterNet article "Greenspan's Laissez Fairy Tale: How Flawed Economic Theories Fail to Account for Financial Fraudsters.") Greenspan believed (as he stated in a 2005 commencement speech at Harvard) that the Sarbanes-Oxley Corporate Accounting Act of 2002, and CEOs' concerns for their own public reputation, were all that was required to keep potential wrong-doing at bay.
It was the self-same Alan Greenspan who in 2001 warned Congress of the dangers of eliminating the Federal Deficit, then reversed himself in 2011 in hearings before the Senate Finance Committee. As Mark Gongloff reminded us in his September 13, 2011 Wall Street Journal article, "Same Greenspan Who Warned Against the Budget Surplus Now Warns About Deficit."
The Dangers of Unfettered Capitalism
The late Milton Freidman, in an interview just before his death with Professor Joel Bakan about his 2004 book, The Corporation: The Pathological Pursuit of Profit and Power, stated that he believed that government should represent no more than 10-12% of the GDP. Elsewhere, Dr. Freidman had stated that the ideal unemployment rate is about 6.5%, because at that level it both helps to keep wages low by keeping jobs scarce and makes the unemployed willing to accept positions at a lower wage than they would have demanded previously.
What Professor Friedman did not seem to understand is that this system only works if you have a rising population, which insures a larger pool of workers and a broader customer base. When this logic is applied to most of the Western Democracies--which are approaching or have arrived at at a stable equilibrium in population--that larger pool of workers and customers disappears. If you import--legally or illegally--additional workers to shore up the bottom tier of low-wage jobs, they will not have the wealth necessary to buy the more expensive goods and services provided by business. Nor is there any guarantee that exports will be able to take up the slack. Worst of all, you make it more difficult to provide necessary government services, which are proving to be far more than the courts, the military, and the support programs needed to address the most extreme cases of poverty imagined by Dr. Friedman in his draconian world. The outbreaks of salmonella and listeria in our food supply, and the derivatives scandal and subsequent bail-outs of the "too-big-to-fail" banks, are just two examples of unpredictable exigencies in today's complicated, interconnected world for which Dr. Friedman's simplistic theories simply cannot provide solutions.
No, the system that Dr. Friedman desired only works if you have a continuous, unfettered growth of population, production and spending in a closed economic system that is supported by the entire populace and nation. As Thom Hartmann has pointed out on more than one occasion on his radio show, Friedman's philosophy is that of a cancer, not of anything healthy or sustainable. Paul Buchheit, in his May 5, 2013 AlterNet article, "5 Ways That Raw, Unregulated Capitalism Is Acting Like a Cancer on American Society," examines how our so-called "free market" capitalist system: 1) attacks the hungry; 2) suffocates college students; 3) weakens our children; 4) depletes We the Taxpayers; and 5) paralyzes the voters.
Mr. Buchheit ends his article with these three paragraphs:
"There's much more to the sickness, like the workplace explosions and fires triggered by cost-cutting measures, banks preying on working people, the environmental destruction caused by oil companies and herbicide manufacturers, attempts to profit from global warming, the middle-class collapse caused by corporations transferring jobs overseas and then calling themselves multi-nationals to avoid allegiance to the country that supported their growth. Et cetera, et cetera.
"This all allows a small number of people to make most of the money. These are the people who demand 'freedom' at the first hint of regulation.
"The post-WW2 American body began to deteriorate around the time of Milton Friedman, author of one of the all-time economic inaccuracies: 'The free market system distributes the fruits of economic progress among all people.' For forty years the sickness caused by his teaching has spread, at first without pronounced symptoms, but now in an out-of-control process that threatens to incapacitate the better part of America. A revolutionary medicine may be the only hope for recovery. A revolution, that is, of co-ops and small farms and local currencies and solar panels on the rooftops."
The Real Effect of Reinhart and Rogoff's "Error"
Dean Baker, in his April 16, 2013 op-ed in England's The Guardian (reprinted from the CEPR blog of the same date), "How Much Unemployment Did Reinhart and Rogoff's Arithmetic Mistake Cause?" speaks to the problems of austerity as a means to eliminate a nation's debt.
Mr. Baker first brings up reasons why we should question Reinhart's and Rogoff's conclusions. (For clarity, I have restored the primary antagonists' last names from Mr. Baker's abbreviations):
"First, there is good reason for believing causation goes the other way. Countries are likely to have high debt-to-GDP ratios because they are having serious economic problems.
"Second, as Josh Bivens and John Irons have pointed out, the story of the bad growth in high debt years in the United States is driven by the demobilization after the Second World War. In other words, these were not bad economic times; the years of high debt in the United States had slow growth because millions of women opted to leave the paid labor force.
"Third, the whole notion of public debt turns out to be ill-defined. Countries can sell off assets to pay down debts: would this avoid the Reinhart and Rogoff high debt twilight zone of slow growth? In fact, even the value of debt itself is not constant. Long-term debt issued in times of low interest rates will fall in value when interest rates rise. If there is a high debt twilight zone effect as Reinhart and Rogoff claim, then we can just buy back bonds at steep discounts and send our debt-to-GDP ratio plummeting."
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