Stiglitz vs. Greenspan: A Fundamental Lesson on Markets

Whenever I hear someone cursing the selfishness and capitalist elements of our economy/society, I feel a bit of resentment. Even the most impecunious of Americans today benefit from the selfishness and industrialism of past generations, as the standard of living has improved across the board for all people, though not always in a degree proportionate to their contribution.

So in a society which ranks altruism among the most noble of human virtues, why is it that opportunities for selflessness are only made possible by the behavioral patterns diametrically opposed to it? Indeed, if not for the agricultural innovations which promoted mankind from a hunter-gatherer species into one capable of systematic farming, self preservation would be the only option. Efficiency vs. equity would be one of many debates whose discussion would be precluded by a perpetual survivalist struggle.

Perhaps logic negates the possibility of altruism's superiority to productivity. Causes are generally regarded as more consequential than their effects, as the former can exist without the latter, but the reverse is impossible. If you don't buy this, however, there are other reasons to believe that current economic markets are driven by self-interest, and that this is the only acceptable motivation for economic activity.

Natural markets are inherently constructed to maximize efficiency through the sum of a multitude of competing entities. As long as external entities (i.e. governments) enforce personal safety and property rights while refraining from policies which restrict or alter the incentives of economic activity, goods and services are produced efficiently, and awarded to the consumers who value them most highly, generating greater wealth and distributing it in the only logical fashion: according to ability.

Adam Smith illuminated these truths in his revolutionary Inquiry into the Nature and Causes of the Wealth of Nations, saying,

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."

Love it or hate it, this is the fundamental law of capitalism. So When Columbia University professor Joseph E. Stiglitz (Who coincidentally has done terrific work in criticizing the excessive costliness of the Iraq War) identifies the precipitant factors of the sub prime mortgage crisis with the following statement,

"First, key regulators like Alan Greenspan didn't really believe in regulation; when the excesses of financial regulation were noted, they called for self-regulation -- an oxymoron"

it is clear that he is biting the hand that feeds him. Firstly, let Greenspan castigate himself personally for his act of high treason to free markets- that's not your job. Secondly, it is only because ill-advised infusions of liquidity were advanced BY THE GOVERNMENT that the bubble was created in the first place.

When the honorable incentives of the free market are replaced by those which encourage poor lending practices, how is "self-regulation" possible? In short, the main difference between Stiglitz and Greenspan (for most of his life) is that Greenspan understands that free markets bring out the best in humanity: self-improvenment, diligence, productivity etc. Stiglitz would have these virtues replaced by a less desirable system (as has been done).

Then he would have the audacity to blame the remnants goodness for the abominable results.