Obama Won, Greenspan Shrugged, but Capitalists Tool On

Obama Won, Greenspan Shrugged, but Capitalists Tool On
Thursday 06 November 2008
by: Steve Weissman, t r u t h o u t | Perspective

Poor John Galt. Only last year, The New York Times referred to Ayn Rand's "Atlas Shrugged" as "one of the most influential business books ever written," and portrayed Galt, the novel's iconic hero, as a role model for corporate CEOs in their dogged pursuit of self-interest. No wonder, then, the gnashing of teeth in executive suites when Ayn Rand's most famous devotee, former Federal Reserve Chairman Alan Greenspan, admitted that enlightened greed had failed.

"I made a mistake," he told the House Oversight and Government Reform committee, "in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."

For Congressional Democrats, Greenspan's mea culpa pointed the way toward greatly strengthened regulation of our financial markets, which the Fed chair had long opposed. President-elect Barack Obama similarly seems intent on imposing a new regulatory framework, along with higher tax rates on income and capital gains for families making over $250,000.

But please don't gloat yet, as some progressive pundits have done. Most of those at the top of America's corporate tree do not want to be regulated more tightly or taxed at a higher rate, and they are not about to wave the white flag of surrender. For them, the battle is just heating up.

Forbes magazine, which delights in calling itself "The Capitalist Tool," led the counterattack with a cover photo of editor-in-chief Steve Forbes and his call to arms, "How Capitalism Will Save Us." Twice a Republican presidential hopeful and now an economic adviser to John McCain, Forbes had made his millions the old-fashioned way, inheriting his father and grandfather's publishing empire. And, to borrow from the late Ann Richards, he raised his battle flag with the utter certainty of one born with a silver foot in his mouth.

The current crisis, Forbes declared, "was not the failure of free markets but the outcome of bad government actions."

Among his long list of regulatory and monetary errors, Forbes specifically damned the Fed for creating excessive liquidity, keeping interest rates artificially low, and allowing the value of the dollar to fall in line with the Bush administration's desire to promote American exports.

He also faulted Fannie Mae and Freddie Mac for promoting affordable housing in ways we now call "predatory lending," federal prosecutors for too aggressively pursuing fraud investigations of failed corporate risk-takers, and an arcane accounting regulation that requires financial institutions to write down the value of holdings to reflect falling market prices.

I would love to discuss at length each of these and their relevance, but his argument is mostly sleight of hand. The brunt of his message is what he glossed over and left out. In his zeal to absolve the free market of any fault, he completely dismissed the responsibility of individuals and institutions in the housing and financial industries. Their "greed and recklessness," he said, were nothing more than a response to government actions.

Even more stunning, Forbes simply ignored what most observers see as the prime cause of the mess we're in, and that is the massive deregulation of our financial institutions. Forbes was - and is - a leading champion of deregulation, and given what followed his success in selling it, who can blame him for wanting to talk about almost anything else?

In fact, his silence on the subject has nothing to do with shame. Like the Bourbon kings who learned nothing and forgot nothing, Forbes continues to fight against reasonable regulation of his mythic free markets, placing his faith in some invisible self-regulating mechanism that seems to have gone AWOL.

He also continues to take it on faith that lowering tax rates on capital gains will increase investment and create more jobs, even though historical studies suggest that the tax rates do not significantly deter or encourage investment. And, of course, he continues to champion his proposal for a highly regressive flat tax, which would redistribute the tax burden even more onto those who can least afford it.

Nor does Forbes stand alone in his defense of unregulated markets and lower taxes on the wealthy. These remain the religious dogma of trickle-down economics, from John McCain to the US Chamber of Commerce and diehards on Wall Street. True believers, they will continue to push their economic faith no matter who becomes president. If Obama's victory means anything, fewer of us will be fooled this time around.