Solutions

by digby

Uncle Alan had some interesting things to say today. I think I like this most of all:

He said it was critical to find ways to address growing income inequality in the United States.

Income inequality “is where the capitalist system is most vulnerable,” Greenspan said. “You can’t have the capitalist system if an increasing number of people think it is unjust.”

So true, so true. So, how does Uncle Alan propose to fix the problem?

The former Fed chief said that increasing the number of immigrants with sought-after skills would increase the labor supply of these workers in the United States and hold down the wage gains of all workers with these skills.

In that way, Greenspan said, the gap between skilled and unskilled workers would be lowered.

The key to making Americans happy with capitalism is to hold down all their wages, not just some of them. Is this a great country, or what?

Uncle Alan shared some other thoughts:

Former Federal Reserve Chairman Alan Greenspan said he expects the fallout from subprime-mortgage defaults to spread to other parts of the economy, especially if home prices decline.

“If prices go down, we will have problems — problems in the sense of spillover to other areas,” Greenspan said in remarks to the Futures Industry Association meeting in Boca Raton, Florida today. While he hasn’t seen such spreading yet, “I expect to.”

Subprime borrowers, or those with poor or limited credit histories, are increasingly defaulting after looser lending standards allowed them to take on more debt than they could afford. Last month, Greenspan told an audience in Toronto that “disarray” in the subprime mortgage market isn’t likely to create greater financial instability in the rest of the economy.

“It is not a small issue,” Greenspan said today. “If we could wave a wand and prices go up 10 percent, the subprime mortgage problem would disappear.”

Uncle Alan failed to mention that he had been quite a big booster of those sub-prime mortgages when he was frantically trying to prop up the economy with toothpicks and chewing gum:

“Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. . . . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . .

Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand and beneficial to consumers.”

Why, you’d be a fool not to run right out and get one! Constructive innovation! Beneficial to customers!

K-Drum wrote about this a few days ago and catalogued Greenspan’s comments on the issue over the last few years. It’s ironic that he’s finally been reduced to literally talking about waving magic wands. For too many years his utterances were treated like fairy dust and it’s going to be a miracle if we don’t pay a very huge price for it.

And I hope all those Randian libertarian techies and engineers out there who thought Uncle Alan was some sort of wizard are as happy as he thinks they’ll be when income inequality is solved by reducing their wages. After all, in the long run, it’ll all even out. (Of course, as a very smart economist once pointed out, in the long run even Greenspan-loving libertarians will all be dead.)

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