Inside Alan Greenspan's nightmare

[CHIMO]

Alan Greenspan had a dream, or rather a nightmare. Greenspan seems to have woken up in a cold sweat one morning in fear that the period of "disinflationary pressures" that had kept inflation low since the 1990s was about to end. This was 2007, when he published his autobiographical economic treatise, The Age of Turbulence. Despite his well-known love for economic data, and poring over the latest reports from every statistical agency, he did not realise that he was sitting on a housing bubble of epic proportions. Not seeing the bubble (he also missed the prior stock market bubble that accumulated and burst on his watch, causing the 2001 downturn), he could not know that it would soon collapse and cause a very ugly recession, in which inflation would be irrelevant.

This by itself should be enough to question the wisdom of central bankers, since the evidence for both of these world-historic asset bubbles was blindingly obvious once they had reached a certain size. But Greenspan's nightmare is scary for other reasons, some of which will become increasingly relevant as the world economy recovers.

As Greenspan details in his book, the reason for his nightmare is that the world was depleting its stock of hundreds of millions of unemployed people, including those of the former Soviet Union and also in rural China. In other words, "too many" of them had become employed, and this was allowing for wages of factory workers in China to rise. So long as China had a huge mass of unemployed, wages were held in check, and – according to Greenspan – competition from low-wage production there held down wages in the rest of the world, including even rich countries like the United States. All good! Until the nightmare started.

Is there something wrong with this picture, that one of the world's most powerful economic decision makers (at the time), dreads the decline of mass unemployment and rising wages among people making 80 cents an hour? What, then, is the purpose of economic development, if not to raise living standards for poor people? Some may dismiss Greenspan's values as unrepresentative – he was, after all, a devotee of the extreme libertarian writer Ayn Rand. And his autobiographical narrative is rather unusual: although we learn about his love of baseball, music (he attended the Julliard School), and how he became interested in economics, there is something missing. Most public figures of his stature, and even most economists, would have offered at least a perfunctory paragraph about how his economic thinking was aimed at helping those at the bottom of the social ladder – whether true or not. Greenspan didn't bother.

http://www.guardian.co.uk/commentisfree/cifamerica/2010/mar/10/alan-greenspan-inflation-china

[BeyondGeography]

1. Great piece

A window into their dark and shrunken souls:

"Managers can no longer simply provide eight-to-a-room dorms and expect labourers to toil 12 hours a day, seven days a week," says Business Week.

[indepat]

2. Mighty proud to have long proffered on this board: Greenspan, a name that will live in

infamy. :P

[jtuck004]

3. It makes more sense if you redefine economic development

as something done for our benefit instead of theirs. And by ours I mean the people Greenspan eats lunch with.

Wages low in China means low-priced goods for us, a thriving economy purchasing those goods and selling our weapons and commercial aircraft, technology, processed food, things that enrich the owners of Walmart, ADM, Cargills and the banking and finance titans of whom he appeared to be quite fond.

And then comes the closing bell...