On March 16 the Financial Times published a commentary by former Federal Reserve Chairman Alan Greenspan. The op-ed was published amid wild realities on Wall Street -- a credit crisis, a housing bubble, the collapse of Bear Stearns, and the announcement of multiple Federal Reserve auctions meant to infuse the market with $200 billion. And that was just March!
While Wall Street was all a-flutter over what to do, what to do, Greenspan took pains to present himself as Old Reliable: in his article he stands his ground against intervening attempts to fix the problem (by which we can assume he means intervention by the Fed as well as the Treasury). He concludes:
[W]e cannot hope to anticipate the specifics of future crises with any degree of confidence. Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.
The first sentence is absurd; of course economists have some degree of confidence about economic matters, including future consequences. Otherwise, what are they doing all day?
But his main point is formidable. It deals not with whether economists can anticipate problems, but with whether they should. To Greenspan, the best thing the American economic system has going for it, even in its down times, is the system's own internal mechanism -- its ability to self-regulate itself, that is, to adjust to new realities while remaining stable amid the change. To anticipate the future, Greenspan suggests, is to limit it: let the market play out for itself.
This ingrained theory that America's free-market economy will reproduce itself regardless of the context or the people involved will increasingly be put to the test in the world that we are now entering -- a world of China, India, and the East; a world of the EU and even newer forms of globalization; a world of shifting political and military power; and a world of rising prices and environmental concerns.
Bottom line: As much as Greenspan deserves our respect and appreciation for his long and distinguished service, it seems likely that America will need its present and future leaders to ignore Greenspan's lesson. America's business and government leaders must anticipate future challenges with courage and creativity if the country hopes to reproduce its economic success in the unprecedented world that is unfolding.