OMG, Greenspan Claims Financial Rent Seeking Promotes Prosperity!: I was already mundo unhappy with an Alan Greenspan op-ed in the Financial Times, which takes issue with Dodd Frank for ultimately one and only one disingenuous and boneheaded reason: interfering with the rent seeking of the financial sector is a Bad Idea.... [T]he most important omission is that the we just had a global economic near-death experience thanks to the recklessness of the financial best and brightest. You’d never know that if you read the Greenspan piece, which merely argues against the idea of restricting financial activity under the guise of objecting to certain provisions of Dodd Frank.
I keep referring to this passage of a 2010 paper by Andrew Haldane... the present value of output losses for the world and the UK...:
As Table 1 shows, these losses are multiples of the static costs, lying anywhere between one and five times annual GDP. Put in money terms, that is an output loss equivalent to between $60 trillion and $200 trillion for the world economy and between £1.8 trillion and £7.4 trillion for the UK. As Nobel-prize winning physicist Richard Feynman observed, to call these numbers “astronomical” would be to do astronomy a disservice: there are only hundreds of billions of stars in the galaxy. “Economical” might be a better description. It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year....
In other words, the financial system as it is presently constituted is so destructive to society at large that very radical interventions are warranted to reduce the costs it imposes on others. To put it another way, it is an extraordinarily inefficient at looting. And Haldane’s core observation, that severe financial crises result in permanent output losses (more colloquially, a permanent reduction in the standard of living) is not controversial. And I’ve recently corresponded with Haldane and he stands by this rough and ready estimate.
Yet as horrific as the Greenspan piece is, he manages to sink to unimaginable new lows with the Big Lie he offers at its close:
The vexing question confronting regulators is whether this rising share of finance has been a necessary condition of growth in the past half century, or coincidence. In moving forward with regulatory repair, we may have to address the as yet unproved tie between the degree of financial complexity and higher standards of living...
We’ve been critical of the phony resolution authority as well as other features of Dodd Frank. But the reason is... that the legislation failed to accomplish its stated aims and may be increasing big bank power. Greenspan, by contrast, clearly object to the basic premise of Dodd Frank, that governments should have any meaningful say over the operation of financial financial firms. Einstein defined insanity as doing the same thing over and over again and expecting different results. But the true madness isn’t that Greenspan’s remarks border on deranged; he’s merely a useful and highly paid idiot. It’s that anything he says is still listened to after the huge cost his misguided policies have inflicted on all of us.