Greenspan's Legacy

When Alan Greenspan was appointed as Chairman of the Federal Reserve, in the summer of 1987, there were already rumblings and grumblings about the obscene money being made in finance, even before the stock market crash that fall. Who knew that the shift towards financial glorification was just getting started. That, to me is the great achievement of the Greenspan Fed - keeping the obscenity going.

In 1966, in an oft quoted speech, Greenspan raged against deficit spending as a scheme for the confiscation of wealth. Many people then and since see in the speech, as Paul Simon sang, what they want to see, a call for honest money and fair trade. But, I contend, Greenspan's cause was not honest money, per se, which was but a means to an end. Rather, he wanted the rich, particularly those who owned firms (financial industry employee compensation as a percentage of total domestic compensation has only risen 1.5%) in his chosen field of finance to get richer. In that regard, he succeeded in his goal.

In 1987, less than 19% of total domestic corporate profits were earned by financial firms, while just under 27% were earned by manufacturing firms. In 2004, 33% of total domestic corporate profits were earned by financial firms while just over 12% were earned by manufacturing firms. In 1987, the US had a slightly positive net international investment position. In 2004, the net international investment position was -$2.5T, which is to say that under Greenspan's Chairmanship, the US sold the family jewels to keep up appearances and the guys who served as middlemen in the process, the owners of the financial sector, got rich doing it. (all data: BEA)

It is only fitting, I believe, that in this last year of his reign, Wall St. bonuses hit a new record of $21.5B, surpassing that of 2000. Greenspan not only tilted the table, so to write, in the direction of finance, his obscurantism led many a great many people to assume he was working for them. This is his legacy.