Alan Greenspan has an article today in the Financial Times where he comments on the current non-recession and argues in favor of the free market. It is a popular theme in the current political environment that the current housing and credit crisis was somehow created by government policy or lack of regulation. In fact, government policy had less to do with it than global forces in the financial markets and, as Greenspan puts it, "human nature’s propensity to sway from fear to euphoria and back." However, Greenspan warns, attempting to retreat from globalization would have "an awesome cost."
It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. In reality, the past decade has seen mounting global forces (the international version of Adam Smith’s invisible hand) quietly displacing government control of economic affairs. Since early this decade, central banks have had to cede control of long-term interest rates to global market forces. Previously heavily controlled economies – such as China, Russia and India – have embraced competitive markets in lieu of bureaucratic edict. The danger is that some governments, bedevilled by emerging inflationary forces, will endeavour to reassert their grip on economic affairs. If that becomes widespread, globalisation could reverse – at awesome cost.The full article is here.