Former Fed Chairman Greenspan Excoriates Obama Administration: "Obama's Activism Hampering US Recovery"
March 15th, 2011
by Lee Ross
Former Federal Reserve Chairman Alan Greenspan says the Obama Administration's "activism" in handling economic affairs is hampering what could otherwise be a robust recovery from the recent recession.
Greenspan, speaking to the Council on Foreign Relations Tuesday, argues that companies sitting on stockpiles of cash are unwilling to make long-term capital investments because of increased government regulation and hundreds of billions of dollars in stimulus spending that have "crowded out" private investment opportunities. It's a situation he says closely models the trends during the Great Depression.
"There's very much [a] similar fear of what government will do," he said.
This hesitancy from corporate America, Greenspan claims, has kept unemployment rates at increased levels not seen in several decades and led to a "disappointingly tepid" economic recovery.
Greenspan's comments replicated the observations he made in a recent commentary for the journal "International Finance." He asserts that over past two years, lawmakers in Washington have been too keen-or active--in trying to legislate the economy.
"I conclude that the current government activism is hampering what should be a broad-based robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market," Greenspan wrote.
The aversion by corporations--and households too--from making large long term capital investments hasn't been this sluggish since 1940, Greenspan says. He blames uncertainty over continued government interference for the apparent corporate intransigence.
"If you have to invest over a very long period of time--assets which are irredeemable, which means you have to make a very critical choice-- you have to have some confidence, in part, at least, that you will know what the structure will look like." Greenspan said Tuesday. He pointed to utility companies that are reluctant to spend money on major infrastructure projects when they can't project with certainty their carbon costs.
In his article, Greenspan notes that the one area of economic activity Washington lawmakers have stayed away from in recent years is the stock market.
"It was speculative buying in early March of 2009 in equities, the one market that the U.S. government has not supported, that set in motion huge, almost two-year near doubling of stock prices that has arguably been the most potent economic stimulus to date."
Greenspan, who supported TARP, says the Obama administration's stimulus programs and support for the Dodd-Frank regulatory bill, has hobbled financial markets and exacerbated corporate unease. "The recent pervasive macro-stimulus programs exhibit the practical short-falls of massive intervention," he wrote. "But if aversion to illiquidity risk remains high, capital investment and GDP will presumably remain stunted."
In the end, Greenspan remains bullish on the economy saying federal intervention slowed at the end of last year and "aversion to illiquid risk appeared to be subsiding." He says if future corporate earnings continue to rise and government activism recedes then "stock values, of course, would move higher and carry with them significant wealth effect that should enhance economic activity."