OPINION

The end of supreme authority

His 18-year term as chairman of the US Federal Reserve was already under scrutiny because of the crisis rocking the international economy. But Alan Greenspan’s admission last Thursday that his resistance to greater regulation of the credit industry had been a mistake, and that he was «shocked» by developments, was heavy in symbolism: The man who was considered responsible for the flourishing economy of the past two decades, the key player in the world’s largest economy, admitted that he did not know as much as we thought he did. Testifying before the House Committee on Oversight and Government Reform, Greenspan, whose term ended in 2006, confessed that his ideology (of a free market needing no external restraint) may have mislead him. «That’s precisely the reason I was shocked, because I’d been going for 40 years or so with considerable evidence that it was working exceptionally well,» he said. «I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms… I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works.» This raises the question: If Greenspan did not know how the world works, who knows where we are headed now? It seems that after the end of ideologies comes the end of those whose position equates them with supreme authority in their field. The greatest economists are trying to figure out what went wrong and to propose solutions; one country after the other is admitting that it has a great problem (after having claimed that the United States’ problems did not concern them); state intervention has become the only hope for the now semi-free markets; heads of government are meeting repeatedly to work out ways to deal with the crisis. But, despite the measures that have been taken at the global and local levels, in coordination with other countries or unilaterally, no one has been able to calm the markets. President George W. Bush has called a meeting of 20 heads of government in Washington on November 15, after his successor’s election. The aim is to agree upon a way to manage the global economy – in other words, to agree on a successor for the system that was set up after World War II. The question is: What is the theoretical foundation on which the new economic regime will be established? At a time when markets are collapsing without any measures capable of helping them, can we know which rules ought to be adopted and enforced in the global economy? The situation is unprecedented. The whole world is a big laboratory – where no scientist understands what will happen and no one is in charge. If one good thing comes out of all the turmoil, it is that everyone now knows that prosperity cannot be based on loans only, and that from now on the economic system has to be transparent and based on sober appraisals of the situation. There is a great need for seriousness on the part of citizens but also by the economy’s players, whether they be government officials, bankers or other managers of other peoples’ money. The crisis, as we see in Greenspan’s case, has introduced humility into the public debate. The end of theorists’ arrogance and consumers’ frenzy may lead to greater seriousness across all aspects of the economy, from the global to the personal. But a protracted crisis can become very dangerous. Since no one knows how or when it will end, we cannot estimate its consequences. In a world where the institutions did not anticipate disaster, where the supreme authorities fell to earth, who can citizens trust (especially when they come under the intolerable pressure of an economic crisis)? In such circumstances, people look for someone who will reassure them that he knows what needs to be done, knows where he is going and knows where to lead them. And that’s when con men, opportunists and populists with extremist policies come to the fore. The economic crisis, in other words, may be only the beginning of far greater upheaval.