Goldman Sachs Treasury Secretary Robert Rubin and Deputy Treasury Secretary
Larry Summers, prevented Brooksley Born, head of the Commodity Futures Trading
Corporation, a government regulatory agency, from doing her job of regulating
The efficient markets theory is that
unregulated markets are efficient and rational. According to this theory in
which Greenspan placed his trust, unregulated markets produce the best possible
result. Any regulatory interference worsens the outcome.
But what is the truth?
The truth is that markets are a
social institution. Their efficiency depends on the rules that govern the
behavior of people in markets. When free market economists talk about markets
deciding this or that, they are reifying a social institution and ascribing to
it decision-making power. Socialists make the same mistake when they blame
markets for the results of human action. But, of course, markets do not act or
make decisions. People act and make decisions, and markets reflect the decisions and actions of people.
The entire debate over regulation is misconstrued. It is not the market, an efficient social institution, that is regulated. What is regulated is the behavior of people in markets. If you want good results from markets, good regulation of human behavior is a requirement.
If people who use markets are not regulated, they issue fraudulent financial instruments. They leverage assets with absurd amounts of debt. They market their instruments with
fraudulent investment grade ratings. They deal themselves aces.
Did Greenspan not know this? Was he a victim of a theory or an enabler of greed
unleashed by the absence of regulation?
The way to bring socialists and capitalists together is to recognize that markets are efficient and that self-interested human behavior requires social regulation.
The failure to regulate financial markets has produced enormous losses to all Americans except the super-rich. But the U.S. government is guilty of an even greater failure.
Washington has not only permitted but also encouraged the unemployment of its
citizens by enabling greed-driven corporations to send American jobs abroad in
order to maximize profits for CEOs' bonuses, shareholders, and Wall Street.
As Ralph Gomory has made clear, economic theory has been
shattered, because there is no longer any connection between the profits of
American companies and the welfare of Americans. The profits of American
companies are derived from the cheap labor in offshored locations, and are at the
expense of the American work force.
This dispossession of American labor has been heralded by offshoring's pimps in the major universities as "the New Economy."
If jobs offshoring is a benefit to America, as the hired pimps of the transnational corporations claim, why is more than one-fifth of the U.S. work force unemployed? Why does the U.S. have the largest trade deficits in world history? Why is the U.S. dollar losing value over time to other tradable currencies?
Greed and elected representatives, who are toadies to special interests, are decimating the American economy.