Former Federal Reserve Bank Chairman Alan Greenspan, in a Financial Times interview, reveals that he believes the Bush tax cuts should be allowed to expire as planned.

Greenspan, still referred to as “the Chairman,” is still the same laissez faire advocate familiar to those who take the time to watch the Federal Reserve.  Although his sterling reputation has been seriously damaged by the financial collapse of 2008, he seems unconcerned about that in this interview — at 84 years of age such setbacks apparently dim in importance.

Here’s the relevant quote in the FT article:

“The other part of his record seized on by critics, especially Democrats, is his support for two rounds of tax cuts. One came in 2001 at the beginning of the administration of President George W Bush and one two years later. The week before we met, with an eye to the US’s huge fiscal deficit, he told an interviewer that he supported reversing those tax cuts, a remark seized on by his detractors to argue that he was irresponsible to have backed them in the first place. Here, too, he has a carefully worked-out response. One, both administration and congressional forecasts back then predicted huge fiscal surpluses, so a tax cut was quite sensible. Two, he argued at the time that a second round of cuts should be made conditional on how the economy and the public finances developed, which they were not. Three, he underestimated how his words would be seized on to justify reducing taxes willy-nilly, and he has already admitted that mistake in his 2007 memoirs, The Age of Turbulence. “Criticisms are wholly deserved when you’ve done something wrong, I grant you,” he says. “But I still prefer when I’m criticised that it be accurate.”

Beezer’s long argued that the obsession over tax cuts, and truthfully over monetary tools in general, has prohibited public discourse about other more important dynamics for maintaining robust economies.   Sensible, progressive tax tables that are kept unchanged, provide an all important stability in planning and additionally help pay down government debt accumulated in recessions, while providing surpluses when times are good.  Constant fiddleing with tax rates are a waste of time, in other words.  The more important issues are balanced trade, tariffs, currency manipulation, industrial policies aimed at full employment, innovation and capital investment, among many others.

That Greenspan, the icon of regulatory forebearance (blind regulation), thinks a return to the Clinton tax tables is interesting.  What’s amazing is that the media completely ignores his viewpoint now.  Republicans, to a man and woman, still maintain tax cuts are the cure to all evils.  Despite their guru acknowledging they aren’t.

No wonder we can’t get out of our own way.

As per usual, thanks to Mark Thoma’s economist’s view blog for highlighting this interview.

Too Big To Fail (TBTF) is another phrase for Oligopoly, or even Monopoly.  Competition chooses winners and losers.  Over time, winners consolidate power and eliminate, or buy, losers.  Once power is consolidated, competition is eliminated and the winners focus on preserving their status in two fundamental ways: Capturing power from government and eliminating transparency so the public cannot see what’s happening.

In America capturing power from government means capturing Congress and regulators.   Congress is the first priority and the tool used is money.  Money is spent on agents to lobby Senators and Representatives, and on raising campaign funds for their re-election campaigns.  Capturing regulators is a similar, but more problematic, issue.  Money is used by offering regulators much higher paying jobs in private industry once they leave government, and in the most advanced stage, recycling those now wealthy former regulators back into government at the highest levels of regulation.

Derivative securities provide an excellent example of how to eliminate transparency.  These unimagineably complicated financial constructs allowed the Wall Street oligopoly to mint money.   Using derivatives, Wall Street’s wealth and power ballooned.   But Wall Street, and finance in general, doesn’t actually make anything.  Their role is one of intermediary.  So at some point this oligopoly, too long freed from actual competition, did what oligopolies or monopolies all do:  Bring their own house down.

But being down does not mean being out.  Far from it.  A crippled Wall Street is pulling every lever it possesses to protect itself from fundamental change.  And after years of nurturing Congressional and regulatory capture even a weakened Wall Street remains formidable.

Sunlight is the only cure for this mold that’s infected our country.  Derivatives don’t need a more robust trading system, they need to be eliminated entirely.  Financial instruments like derivatives are all based on numerous “assumptions” that effectively place them beyond the reach of regulation.  Sunlight on money flow is critical also.  And this money flow has to be identified and explained to the public at large, not just to those individuals who have a particular interest in these money flows.

Mass media needs to do a much better job of connecting the dots when it comes to this all important money flow.  The inquiry is simple:  Who’s paying whom?  And the media doesn’t have to produce long lists of contributors, all it needs to do is identify the top 15 or so and then ask Senators and Representatives, and even the President himself, to explain why the public should not be suspicious about any decision affecting top contributors. 

One cure for this would be to “cap” total campaign expenditures and to eliminate third party ad campaigns.  The real difficulty with this is the media itself, which benefits greatly by campaign expenditures.  Looked at another way, huge campaign expenditures funded primarily by oligopoly special interest flow into capturing the media itself.

The internet may be able to eventually provide some sunlight into all these areas, possibly even into the mass media itself.   But the internet’s vastness hinders its ability, so far, to be effective.  

Right now it doesn’t look all that good for sunlight and the public.  We do know that vast amounts of public money, and future public taxes, are being committed to Wall Street under the Obama administration and Federal Reserve chairman Ben Bernanke.  To date Bernanke has been the most forthright in explaining why he’s committing so much public money to Wall Street.  He’s not elected and runs no campaigns, so he’s not susceptible to that kind of capture.   And he’s not from Wall Street.  It must be remembered, however, that even though the President appoints the Federal Reserve Chairman, the Federal Reserve itself is owned and paid for by the banking industry, where Wall Street sits in the front row.   In one sense, every Federal Reserve Chairman is “captured” the day he or she is confirmed by Congress.

Despite all these hurdles, sunlight must eventually pour in.  If it remains “cloudy” we will remain in the dark and the oligopolies and monopolies will remain.  Survival of the fattest, not the fittest.