Earth to Greenspan: Go Away!

The picture is not a metaphor for global financial meltdown: it's my Southern Cal land of origin burning to the ground. See my Global California blog for links to the maps and more.

I get a little preachy there about the social roots of natural disaster, which we can call in shorthand "Mike Davis is Right." There's been lots of great work in recent decades about the natural disasters caused by social forces like the international banking community's idea of development - the effects on ecosystems and communities of the IMF's love of giant dams, for example. Greenspan is one of those guys, helping to cause economic and natural disasters that he then permits himself to lament.

He's doing it again, using his recent book as an excuse to go around lecturing everyone about current policy errors in his typically convoluted way.

"Obviously there is a limit to the extent that obligations to foreigners can reach,'' Greenspan said in a speech in Washington yesterday. The dollar's decline to its lowest since 1997 may be "an indication America is approaching this limit.''

Well golly. (See the full article for an attempt to endow Greenspan with the dignity of historical consistency.) The irritating thing here is not that Greenspan is wrong - he's right. The irritating thing is that he acts like he wasn't the leading economic policymaker in the U.S. if not the world until 2006, having been chair of the Federal Reserve since 1987, and therefore in large part responsible for this financial "limit" and many others.

He can go around acting innocent because of an even more irritating thing: now well into his 80s, Greenspan continues his quest to make economics seem like a collection of natural phenomena rather than the effects of deliberate choices made by the folks in charge, like him.

So he is an outrageous overuser of the passive voice, in which no policy agent ever does anything, things just happen. "A diminished appetite for adding to dollar balances" is reached, or the subprime crisis is suddenly observed, or this or that crisis is "waiting to happen." The only agents are inanimate objects: the dollar "drifts downward," for example.

As an explanation of how things work, this is really dumb. It's like my 5-year-old self standing next to the cookie jar and telling my mother, "the cookie is no longer in the jar." Mom wouldn't buy it, but hundreds of millions if not billions of people have to buy this kind of nonsense - about what happens to their money - every day.

What is the goal of Greenspan dumbness? With the dollar, it allows policymakers to continue to let the dollar slide. Greenspan is thought to oppose Bush Administration economic strategy. Here, he helps Treasury Secretary Hank Paulson tank the dollar to help US export firms by implying that it's all automatic, the dollar drifts, limits are reached, nothing can be done.

That's absurd: European policymakers are warning traders not to make "one-way bets" against the dollar, and scholars offer ways the U.S. Treasury could stop or slow the decline (e.g. suddenly buy dollars, scaring dollar-shorters out of their one-way bets). But as long as we have Greenspan around to muddy the waters with laissez-faire dumbness, stabilization will be that much harder.

Short those dollars. Burn baby burn.