PBS’ Frontline recently ran a story on the former head of the CFTC, Brooksley Born, and how she sounded an alarm about the then yet to happen meltdown in derivatives. Because her call for tighter reform flew in the face of Greenspan’s Ayn Rand-dominated philosophy of complete separation of markets and state, Greenspan and Clinton’s Treasury people shut her up and sidelined her comments.
This is why I say economics cannot ever become a belief system. It’s imperfect as it is and can’t be used as the basis for an ideological guide for policy. Actually, I’m not so thrilled with hidebound ideologies in politics. Those always lead to tears and suffering whenever the followers of an ideology try to bend reality to fit their view of the world.
Frontline has the episode online, and I strongly recommend you give it a view if you didn’t catch its broadcast. For my students, if you want some extra credit, watch it and write a little something about how Greenspan’s views contrasted with those of Keynesians. You might want to look at what happens in the stock markets when regulation in the USA is on the way out and what happens when regulation is in effect.
I know I don’t want to see government mucking about in my markets, but I have to face facts: some mucking about is necessary to keep criminals from ripping people off. There has to be a balance, though. If there’s too much government, the criminals do their ripping off in office instead of in boardrooms. Completely free markets result in horrors of humanity that markets might correct, but after much evil and unnecessary suffering.