Federal Reserve chairman Alan Greenspan, renewing his call against protectionism, said Monday that free markets have worked best to limit economic downturns in the past few decades and boost living standards.
"So long as markets are free and human beings exhibit swings of euphoria and distress, the business cycle will continue to plague us," Greenspan said in a speech by satellite to a London conference and released by the Fed.
He noted that "flexible institutions appear to significantly ameliorate the amplitude and duration of the business cycle."
The "creative destruction" of capitalism does cause pain, but it also brings forth a stronger and wealthier economy, he said. Greenspan made no remarks about the current US economic performance or the Fed's monetary policy a day ahead of a two-day meeting of the Federal Open Market Committee.
Greenspan's speech repeated many themes he has developed over the years as a stronger supporter of market capitalism.
The US central banker once again warned that creeping protectionism could destabilise the global economy in a misguided effort to protect US jobs and products.
Although a million Americans leave jobs each week, he said, more than 94 percent of the workforce has remained employed year after year. "We can thus be confident that new jobs will displace old ones as they always have, but not without a high degree of pain for those caught in the job-losing segment of America's massive job-turnover process."
He added that "the most significant lesson to be learned from recent economic history is arguably the importance of structural flexibility and the resilience to economic shocks that it imparts. The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances and thus to contain the size and consequences of cyclical imbalances." Greenspan repeated his concern about a return to protectionism, which has been linked by many to the Great Depression.
"For the most part, we in the United States have not engaged in significant and widespread protectionism for more than five decades," he said.
"The consequences of moving in that direction in today's far more globalise financial world could be unexpectedly destabilising".