Greenspan's View of the Proper Limits of Government Expands

The National Journal picks up on Alan Greenspan's change of mind on the proper role of government in corporate supervision and surveillance.

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National Journal Magazine Archive

But for my dwindling money, none of the overtly reassuring riff was as reassuring as the little off-the-cuff acknowledgment: "I was wrong." To be sure, it is downright depressing to contemplate what the chairman declared himself to have been wrong about. "My original view was that taking accounting standards ... out of the private sector was really utterly unnecessary ... [because business'] self-interest is so strongly [dependent upon the fact that] their reputation was unimpeachable.... I was wrong." In other words, where honesty is not only the best, but the most self-serving, policy, regulation should hardly be required. But he now had to admit, regulation is required.... Granted, he had changed his mind on a very finite point and to a fairly unavoidable conclusion. But it was a finite point in the infinitely repackaged question of what is and is not the proper reach of government, and precious few of his self-declared disciples ever change their minds about any aspect of that...

07-20-2002

COLUMN: Neither Party Can Escape Responsibility for the Mess

"I was wrong."



A lot of things were said on the morning of Tuesday, July 16, when Federal

Reserve Chairman Alan Greenspan testified before the Senate Banking,

Housing, and Urban Affairs Committee, but for me, "infectious

greed" or no "infectious greed," that was the thing that

stood out-and not only because it was said out loud, in Washington, by a

public figure who was not using the phrase to herald the beginning of a

long and difficult process of healing in his marriage.



No doubt because I joined a 401(k) plan at the precise moment that

everything was shot to hell, I found not only humility in those words, but

also hope, albeit faint. The hope is that the stock market is going

through a correction that will prove relatively minor in the long run-and

that the political machinery is going through a correction that will prove

relatively major in the long run. Of course, this being a hearing, the

hope came with tripe.



Bland, gray, CNBC-ticker-type things were said about corporate governance

and public confidence, the expensing of stock options and the stimulative

benefits of lowering interest rates, and the rise of the Euro and the

sobering lessons of the yen.



Many, many fatuous things were said-so many such frankly fatuous things

that one could not quite decide whether the senators were aiming their

comments at the prettiest girl in the whole senior class or a chairman

named Mao. "Your words can literally move markets," sighed Sen.

Evan Bayh, D-Ind. ("You have the most incredible



eyes ...") Sen. Phil Gramm, R-Texas, pronounced Greenspan "the

greatest central banker of the era," prompting committee Chairman

Paul Sarbanes, D-Md., to chortle that Gramm had chastened his praise since

the last time Greenspan had testified, which in turn prompted Gramm to

reaffirm his previous assessment of Greenspan as the "greatest

central banker in the history of the world." (Long live Chairman

Greenspan!)



Sheepishly, flabbily political things were also said. Sen. Jon Corzine,

D-N.J., tried to get Greenspan to take a nibble at the notion that

President Bush's tax cuts should be rolled back, and Sen. Charles Schumer,

D-N.Y., tried to solicit an endorsement of-or at least an arguable nod

at-his proposal that companies should be obliged to tell investors some

version of what they were telling the Internal Revenue Service about their

profits. (Not surprisingly, the most devastatingly brilliant central

banker since money entered the mind of God did not play ball.)



One refreshingly plain, if pointless, thing was said: Sen. Jim Bunning,

R-Ky., expressed a desire to find some constitutional way to expedite

prosecutions that would "restore some confidence in the market"

by allowing "the public to see some of the executives who have

committed fraud to walk around in handcuffs and orange

jumpsuits."



Ultimately, of course, grandfatherly, comforting things were said by the

witness who had come to say them. True, Greenspan's assertion of the great

degree to which the whole proposition of good corporate governance depends

upon the personal character of CEOs did produce a certain flutter in the

digestive tract. But overall, the chairman made, as ever, for a convincing

soul of reassurance as to just how much bigger and bloodier a mess

everything would have to be in order for the smart people to panic.

"The system is frayed, but it is not broken.... There is not a need

at this particular point to rush here.... Corporate governance will be

just fine for the next two years.... Speed and expeditiousness is not

important here. Doing it right is very important.... Productivity is still

moving at a really quite remarkable pace.... Our inability to forecast is

a testament to how good the markets have become ..."



But for my dwindling money, none of the overtly reassuring riff was as

reassuring as the little off-the-cuff acknowledgment: "I was

wrong."



To be sure, it is downright depressing to contemplate what the chairman

declared himself to have been wrong about. "My original view was that

taking accounting standards ... out of the private sector was really

utterly unnecessary ... [because business'] self-interest is so strongly

[dependent upon the fact that] their reputation was unimpeachable.... I

was wrong."



In other words, where honesty is not only the best, but the most

self-serving, policy, regulation should hardly be required. But he now had

to admit, regulation is required. That is to say, God himself had changed

his mind. Granted, he had changed his mind on a very finite point and to a

fairly unavoidable conclusion. But it was a finite point in the infinitely

repackaged question of what is and is not the proper reach of government,

and precious few of his self-declared disciples ever change their minds

about any aspect of that.



Clearly, few elected leaders will admit they were wrong. But wouldn't it

be great if this whole anti-corporate convulsion led them to entertain the

possibility that they were wrong?



Imagine if mislabeled conservatives said-or better yet, actually thought,

as a result of this whole mess-that they had been wrong. This would, I

hasten to add, have no bearing on the wrongness of authentically labeled

conservatives. Those who believe that business should suffer minimal

government intervention, and thus not only be spared undue government

regulation but also denied undue government indulgence, might reassess a

little. Their definition of what constitutes due government regulation

may, like Greenspan's, expand a bit.



But as for the very different crowd who have gotten used to clubbing

government programs because they are government programs; who have

furthered the fiction that the market's invisible hand has magic fingers;

who have argued that throwing good money after bad industries is somehow

less inane than throwing good money after bad programs; who have said that

the public sector is by nature a bloated limb; and who have proclaimed

that private enterprise is by nature the image of taut sinew ... these

folks' day may not be done, but it ought to have become significantly less

pleasant. Clearly, it should still be possible to make the argument

against government regulation in any context where the debate arises. But

it should now be much harder to make a knee-jerk argument against

regulation. And, as always, what's bad for the knee-jerks is good for

everyone else.



As for the Democrats, it pains them to be considered just as bad as the

Republicans. But in terms of addressing the real regulatory issues at

stake, their short-term pain is a practical gain. While the perception of

the parties as two heads of the same special-interest monster gives rise

to the laments that the whole Congress has sold out, the fact that neither

party can escape responsibility does force both parties to engage

(somewhat) realistically.



In this sense, the fact that there is so little low-hanging fruit on the

tree of blame is a very good thing. What would the Democrats be doing, if

they were pure as rainwater on this issue? If they had not spent two

decades moving over to the general (and, of course, legitimate) idea that

what was good for Wall Street could be good for Main Street; if they had

not added some traditionally Republican-tending shysters to their own

donor pool; if their ranks did not include some of those who are willing

to perceive the virtues of ... opaqueness ... as opposed to those of

transparency, when it comes to the accounting practices of the industries

they favor?



(Curiously, whether or not one believes that companies should be required

to expense stock options, and therefore reflect them as costs affecting

earnings, is largely a matter of whether one represents areas replete with

start-up industries that live off not having to do so. These industries

are presumably not pleased with the provision in the recently, unanimously

passed Senate bill that the Financial Accounting Standards Board, which

has long favored the curtailing of this practice, will be getting

independent, automatic funding, and no longer have to go hat-in-hand to

accounting firms to beg for its bread.)



Clearly, Democrats would be doing what they are trying to do now: find a

way to whack the Republicans with this without getting whacked back. But

they'd be succeeding much better. They would be in a position to get away

with vilifying business as such. They would be able to chuck rhetorical

dynamite at the crisis, instead of having to be careful to trickle the

gasoline around its less volatile edges. Rather than arguably having some

incentive to play this episode out for a while, as is now the case, they

would absolutely have every incentive to play the episode out as long as

possible. Particularly if Greenspan is right that the underlying system is

sound, this would serve absolutely no purpose. Even the suspicion that

they're all essentially infected by infectious greed is not without its

bright side: Being thus infected, they are sufficiently part of the

problem that they will have to be part of a workable solution.



Greenspan didn't say any of that. But if he had, he would not be

wrong.



Tish Durkin



National Journal

Posted by DeLong at July 21, 2002 12:22 PM | Trackback