Saturday, July 23, 2005

Saturday night Greenspan blogging

I watched Alan Greenspan's last ever testimony on monetary policy from Wednesday today. I found it quite fascinating, as I have when I've watched him in the past. The liberals who cast Greenspan as simply a Randist patsy for the right are mistaken, I think. He has, or at least he projects, a very nuanced view of the economy. One thing he does do is to present controversial issues quite differently to Democrats and Republicans. When a Republican asked about the deficit, he said, very straightforwardly, that government spending should be reduced. When a Democrat asked about CAFTA, Greenspan phrased the issue as a trade-off between a higher standard of living and keeping existing jobs. A cynic might conclude that he's trying to please both sides.

One point I've seen him make before still hasn't really been picked up on. Whenever a liberal asks him about why he thinks that workers oppose free trade he brings up the wage disparity between low- and high-skilled workers. Low-skilled workers are much more negatively affected by globalization than are high-skilled workers. His point is that we are under-supplying high-skilled labor because the education system hasn't caught up yet. Too many low-skilled workers depresses their wages and too few high-skilled workers drives their wages up. But he relates it specifically to the education system. I don't think an Objectivist would do that. Of course he doesn't say what his solution is...maybe it's privatization. But this is a really good point and we don't see education being discussed at all anymore.

Something you realize from watching such a hearing is that Republicans really aren't economically conservative anymore. In particular, at least two Republicans were worried about identity theft and were pushing the idea that there should be some federal standard for financial data security. Greenspan made the point that incentives are set up such that it is perfectly compatible with credit card companies' self-interest for them to provide a very high standard of protection themselves. If Republicans were still economically conservative he wouldn't have had to tell them that. Incidentally, I agree with Greenspan. Credit card companies' profits would seriously suffer if they weren't perceived as secure. Thus all the advertisement lately from banks about whose data is more secure. That's on the firm level. Employees of firms with access to sensitive data certainly have an incentive to sell it. But the standards they are talking about wouldn't so much affect individual breaches.

You also realize that most Congresspeople don't really have a good grasp of what they're talking about. Some, like Christopher Shays, outright admit that they don't understand. With others, you can tell from their questions that they just don't get it. Then there is the always amusing Ron "I Store My Assets in Gold" Paul who invariably uses his five minutes to criticize the idea of even having a central bank with discretionary monetary policy.

Coincidentally, when it was over I flipped from C-SPAN to C-SPAN2 on which Ravi Batra was promoting his very misguided book, Greenspan's Fraud. He advocates a "dual exchange rate" with China which basically means that we'll let the Chinese buy dollars from the Fed at a cheaper price than they can get from the Chinese central bank. It is unclear if they would then be allowed to buy yuan from the Chinese central bank with these dollars. Pay 6 yuan...get a dollar...buy 8 yuan...get $1.25...and so on. It is also unclear whether the Chinese would even be allowed to buy dollars from the Fed because of China's capital controls. It is unclear how flexible monetary policy, which he also advocates, is compatible with this kind of a regime. In short, there are a lot of things that are unclear about his ideas.

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