Alan Greenspan, Egalitarian?
November 07, 2005
Sam Pizzigati is a journalist and the author of Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives, edits Too Much, an online weekly on excessive income and wealth. He can be reached at email@example.com.
The 79-year-old Alan Greenspan, arguably the world economy's single most powerful figure, will finally ride off into the sunset Jan. 31, after 18 years as the chair of the Federal Reserve Board.
But don't expect the media spotlight to stop shining on him—not just yet. We will no doubt witness, over the next three months, a steady stream of over-the-top tributes lauding Greenspan for his long tenure at the nation's economic helm.
Those tributes started gushing two weeks ago, right after President Bush nominated economist Ben Bernanke as Greenspan's successor. Experts, a Bloomberg News analysis quickly noted, believe Greenspan “ran the Fed as well as it could be run.”
“Markets around the globe responded to Greenspan’s televised speeches and appearances,” this early tribute continued. “Traders, investors and lawmakers would hang on every word.”
Well, not quite every word. Over the years, economic movers and shakers have consistently ignored Greenspan whenever he started ruminating on one particular subject. That subject? Inequality—the concentration of America's wealth and income in the hands of its wealthiest citizens.
Alan Greenspan, the darling of bond traders everywhere, actually worries about inequality, strange as that may seem. And Greenspan, the Fed chair who has presided over the greatest concentration of wealth in American history, has been articulating these worries for more than a decade, particularly over recent months.
But no one in Washington's power circles appears to have listened.
Forty-four years ago, no one in these circles listened to President Dwight D. Eisenhower either, in his final months in office, when he warned against “the military-industrial complex.” The nation ignored the former general, a most unlikely crusader against militarism, and paid a huge price.
Will the nation now ignore the alarm bells on inequality from Alan Greenspan, America's most unlikely egalitarian?
If we do ignore inequality, Greenspan himself believes we will pay a high price.
“As I've often said,” the Fed chair told the congressional Joint Economic Committee this past June, “this is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing.”
Inequality in the distribution of income and wealth, Greenspan advised the Senate Banking Committee a month later, amounts to a “very disturbing trend.” This trend, of course, predates Greenspan's stint at the Fed. Income and wealth in the United States, after equalizing throughout the quarter century after World War II, began once again concentrating—at the top—in the 1970s.
By 1987, the year Ronald Reagan named Greenspan Fed chair, the slide toward concentration had become statistically irrefutable.
The wealthy might be becoming wealthier, apologists for this growing inequality soon argued, but their growing fortunes spelled only good news. The more wealth in already wealthy pockets, the argument went, the more the wealthy would invest, the greater the prosperity for everyone.
Greenspan did not join in this celebration of wealth concentration. He would even sometimes challenge—on distinctly egalitarian grounds—the notion that huge fortunes reflect the brilliance and genius of those who hold them. Most all people, Greenspan told one San Francisco audience in 1994, share the same basic innate talents.
“The vast majority of things which human beings can do,” the Fed chair noted, “everyone can do, and the difference between those basic skills relative to what the base is, is really very small.”
Greenspan had, in effect, stumbled upon the core essence of egalitarian economic analysis: If everyone shares the same basic innate talent, then any society that ends up with huge gaps of income and wealth between equally hard-working people has somewhere along the line missed the boat—and needs fundamental rethinking.
Greenspan would go on to challenge, as the 1990s boom roared on, the smug assumption that Main Street had finally meshed with Wall Street, that 401(k)s had turned average Americans into one vast and glorious investor class, that higher share prices meant prosperity and good times for all.
The spread of stock ownership, Greenspan would observe at a 1998 Federal Reserve retreat, has not led “to a rise in the share of stock and mutual fund assets owned by the bottom 90 percent of the wealth distribution.” In fact, Greenspan added, the data show “an apparent rise in the share of wealth held by the wealthiest families.”
He would take some grief for his growing preoccupation with the distribution of America's wealth and income. A Wall Street Journal editorial, for instance, would chide him for devoting the 1998 Fed retreat to “blathering about income inequality.”
But Greenspan kept blathering. Early in 1999, before the House Banking Committee, he spoke out against ever-rising levels of corporate executive pay—and later call on corporate boards to limit CEO stock option windfalls.
Such windfalls, Greenspan would explain to the Senate Banking Committee three years later, help nurture “infectious greed.” The astronomically high rewards corporate boards dangle before their CEOs, he charged, leave executives much more likely to care more about their own personal stock option jackpots than the interests of their shareholders.
“It is not that humans have become any more greedy than in generations past,” Greenspan explained. “It is that the avenues to express greed had grown so enormously.”
By this past summer, Greenspan's inequality alarms had become so incessant that at least one major conservative media outlet was beginning to take notice—and even wonder whether he might be onto something.
The Fed chair, a Washington Times commentary noted in August, has been musing about inequality “with increasing urgency.” Yet Greenspan's "conservative credentials," the Washington Times noted, still “remain impeccable.”
“He is no left-wing class warrior,” the Times analysis concluded, "and his insight and concern should command attention."
How's that for amazing: The nation's most ardently right-wing daily asking readers to contemplate whether the time has come to worry about wealth distribution—and all because of Alan Greenspan.
What should we make of all this? Has Alan Greenspan evolved into the champion of economic fairness and equality the American polity so desperately needs? Ought the average "left-wing class warrior," to use the Washington Times formulation, be singing Greenspan's praises?
Let's hold that parade, at least for the moment. The world hasn't quite turned upside down. Greenspan's worries about inequality do not reflect any late-life conversion to progressive politics.
Greenspan's worries reflect instead a longstanding strain of thought within economic orthodoxy, the fear that average people, if they come to feel that the wealthy have grabbed appreciably more than their fair share, will demand policy changes—on taxes, on trade, on business regulation—that threaten the pillars of economic orthodoxy.
“In a democratic society,” as Greenspan contended this past February, “a stark bifurcation of wealth and income trends among large segments of the population can fuel resentment and political polarization. These social developments can lead to political clashes and misguided economic policies that work to the detriment of the economy and society as a whole.”
The irony in all this? The very policies that economic orthodoxy demands—lower tax rates on high incomes, "free trade," the deregulation of corporate behavior—inevitably lead to greater inequality.
Greenspan has a solution to this dilemma: education. He has taken to blaming economic inequality, at every opportunity, on our inadequate efforts to fully and fairly educate America's young people.
“We need to ensure that education in the United States, formal or otherwise, is supplying skills adequate for the effective functioning of our economy,” Greenspan told one Chamber of Commerce audience last year.
The nation, he went on, faces serious “imbalances between the supply and demand for labor across the spectrum of skills,” imbalances that are “aggravating the inequality of incomes in this country.”
“The single central action necessary to ameliorate these imbalances and their accompanying consequences for income inequality,” Greenspan assured his listeners, “is to boost the skills, and thus earning potential, of those workers lower on the skill ladder.”
The United States certainly does need a greater commitment to providing every child a quality education. No democracy can thrive without an educated citizenry. But education, despite Greenspan's certainty, can't cure what ails an unequal economy.
Indeed, if education could single-handedly lift people up the economic ladder, the last quarter of the 20th century would have seen an unprecedented upward explosion in average American household incomes. In the three decades after 1973, after all, the share of American workers with college degrees doubled.
But educated Americans saw no income explosion in these years. Between 1973 and 2001, the real hourly wages of Americans with college degrees rose all of 11 cents per year. In the 1990s, entry-level pay rates for men with college degrees actually dropped.
The incomes of CEOs, meanwhile, soared over 200 percent in the 1980s and over another 500 percent in the 1990s.
In these numbers sits still another irony that Alan Greenspan might do well to ponder: Our pay gap between typical CEO and typical worker has stretched wider than ever at the same time the educational gap between CEO and wage-earner has become narrower than ever before.
We will, in the end, make no real progress against the great gaps in income and wealth that divide us until we rethink the economic orthodoxy that Alan Greenspan, as Fed chair, defended so vigorously.
But we're also not going to make any progress against those gaps until our decidedly and ridiculously unequal distribution of income and wealth emerges as a topic fit for mainstream political discourse. Alan Greenspan, in his own way, has tried to nudge inequality into that mainstream conversation.
From a Fed chief appointed originally by Ronald Reagan, what more do we possibly have a right to expect?