Posts Tagged ‘Alan Greenspan’

Alan Greenspan Isn’t a Libertarian, Complacency Isn’t Stability, and Debt Isn’t Wealth

Wednesday, October 15th, 2008

A recent New York Times article “Taking a Hard New Look at Alan Greenspan’s Legacy” (Peter S. Goodman), did an entertaining job of slamming former Federal Reserve Chairman Alan Greenspan, and for that, I’d gratefully subscribe (if I could afford it).

But there was a pigeon sized fly in the Timesian ointment– the article calls Greenspan a libertarian with a straight face, and blames the financial crisis, not on Chairman Greenspan’s monetary policy lead foot, but on his “faith” in “free markets”.

Anyone who spends his entire (much too long) career horsing interest rates up and down according to his own bad forecasts can’t possibly be a libertarian, no matter if he once knew Ayn Rand (who said she wasn’t a libertarian anyway), and no matter how many times he may have said the words “free market” (undoubtedly with his fingers crossed).

It doesn’t matter anyway what ideology Greenspan (or anyone else) may say that he has– he’s betrayed them all, or any combination of them all.  Alan Greenspan has always readily taken on or cast off whatever belief best suited his unquenchable narcissism.

Goodman’s Times article focuses on credit derivatives, and makes a convincing case that when they explode, they aren’t very helpful.

But if former Fed Chairman Greenspan et al weren’t continuously stuffing credit into every possible economic crevasse, there wouldn’t have been either a need or a mechanism for the derivatives market to come into existence in the first place.

The most entertaining part of the Times piece is the description of the confrontation of Fed Chairman Greenspan and Treasury allies Robert Rubin and Lawrence Summers with then CFTC Chairman Brooksley E. Born.  She wanted to review the derivatives market, while this triumvirate instead made the argument that even talking about derivatives regulation could trigger a financial crisis.

The Greenspan/Rubin/Summers argument appears appropriately ludicrous in current light, yet their viewpoint remains prevalent in government, Wall Street, and banking circles.  This mental map, which absurdly gets called “free market” is based on:

Assumption #1.  Markets are delicately balanced, and the upside down pyramid can get harpooned and yanked over randomly (like by a suddenly uppity CFTC Chairman).  This is true, but it’s manufactured truth– the pyramid could balance nicely on its base; we choose to stand it on its tip.

Assumption #2.  Once the economy stumbles then government, having in their view not infinite power, but infinite possibilities for power and the country’s sharpest minds to develop and use it, can always push the market upright and back to “stable growth”.  This isn’t true– they mistake the market’s strong organic self-correcting predisposition (often even against the head wind of their efforts), for their self-important wish fulfillment.  (Picture a pre-historic band of sun worshipping priests, who begin to think that their pre-dawn rituals bring up the sun.  If one day they sleep in and the sun comes up anyway, do they change their minds?  Of course not– they’d say, “We sure got lucky that time.  Tomorrow, let’s do two rituals.”  The human capacity to shoehorn powerless insignificance into self-aggrandizing puffery is stunning (and I’m no longer talking about the ancient sun priests, but the modern monetary priests, who should have every advantage to know better).)

So, I’ll repeat the question that one can imagine Ms. Born asking Mr. Greenspan (and apparently Mr. Summers and maybe Mr. Rubin).  “Just what kind of “stable”, “free market” system might it be, that will collapse if it’s even discussed?”

That would of course be ours, as we’re finding out ten years later.  However, instead of not discussing it, maybe we should consider a financial system that doesn’t balance (upside down) on a pyramid of debt?

By Les Lafave 

Abolish The Federal Reserve –

Alan Greenspan Announces That Savings Are Important

Sunday, September 7th, 2008

It only took former Federal Reserve Chairman Alan Greenspan eighty-two years to figure it out– perhaps it’s something that a government economist better grasps once semi-retired– savings matter.

In the clips I’ve seen of the film I.O.U.S.A., one does admittedly need to untangle multiple strands of unregenerate Greenspan self-inoculation to discover the savings devotee.

But if Greenspan knew how to speak something other than Fedspeak, and had even a slight capacity for self-contemplation, he might have addressed the topic something like this: “Suppose that America had the great fortune that I had never been born, and somehow a less narcissistic appointee with a little more resilience of character than a newborn lamprey had been Fed Chairman in my stead.  Further suppose that this responsible Fed Chairman didn’t believe that his or her primary career goal should be to make the U.S. dollar a persistently unproductive vehicle for domestic saving, and savings for Americans a punishment.”

“Under this circumstance,” the imaginary reflective Greenspan might continue, “a person might forgo consuming all his or her income– perhaps for example, buying a used economy car instead of the new luxury car the saver’s full income might have bought, investing the difference.  If this additional investment is productive (and I assume it might be provided I’m not in charge), then the saver can someday buy the new luxury car as a proportionally smaller expenditure, and still keep up the additional saving, therefore further on up the road also buying, investing in, or accomplishing who knows what else. Extrapolate this to a nation, and its various economic actors, and the story is similar, but much bigger– almost unimaginably bigger.”

Henry Hazlitt titles a chapter of “Economics in One Lesson“, “The Assault on Saving”.  Here’s a passage on what real saving can accomplish on a national (or higher) level.  The context of the quote is Hazlitt’s assessment of the much too common and perverse assertion that excessive saving could cause an economy to stall:

“There will not be a ‘surplus’ of capital until the most backward country is as well equipped technologically as the most advanced, until the most inefficient factory in America is brought abreast of the factory with the latest and finest equipment, and until the most modern tools of production have reached a point where human ingenuity is at a dead end, and can improve them no further.”

In other words, quite possibly never.  Hazlitt continues:

“But how can the additional capital be ‘absorbed’?  How can it be ‘paid for’?  If it is set aside and saved, it will absorb itself and pay for itself.  For producers invest in new capital goods—that is, they buy new and better and more ingenious tools—because these tools reduce costs of production.  They either bring into existence goods that completely unaided hand labor could not bring into existence at all (and this now includes most of the goods around us… ); or they increase enormously the quantities in which these can be produced; or (and this is merely saying these things in a different way) they reduce unit costs of production.  And there is no assignable limit to the extent to which unit costs of production can be reduced—until everything can be produced at no cost at all—there is no assignable limit to the amount of new capital that can be absorbed.”

The saving and investing that Hazlitt points to– the type that perhaps the U.S. could have continued at a high rate in the absence of obfuscation from Greenspan and government– wouldn’t necessarily have been used for Corvettes and Cristal. (Although for me personally, the lack of these luxuries may explain my persistent episodes of Greenspan rage.)  As much of these additional available investments would in likelihood have been made in child education and smokestack scrubbers.There’s all the political traction of a greased Gordon Gekko on roller blades, but if we want them, the facts are there.  On both an individual and societal level, our behavior changes as we hit new levels of copiousness.  Wealthy individuals may treat themselves pretty well before they start the charitable foundations, but they overwhelmingly do start the foundations.  The U.S. interest by consumers and entrepreneurs in the environment may follow interest in SUV’s and yachts, but it does follow– we can see its elevation in the U.S. compared with what’s yet to be awakened in China’s fresher consumerism.If we could have maintained an adherence to first legal principles, economic common sense, and a level playing field, then the evidence is that we could have had it all– individuals happy in making their own choices, and society benefiting (at the margin so to speak), from individual satisfaction. We decided to try Greenspan instead.

If a corporation borrows more than they can ever repay from their production, then they’ll have to pay back out of capital- the company has to shrink.

The same can happen to a nation, and we can tell it’s happening to the U.S. as we watch the purchase of American producing assets by foreign entities.

Here’s a Hazlitt quote again, that makes a pretty good summary of the wondrous work that Greenspan (and the Federal Reserve) has done in “managing” money and interest rates:

“The money rate can, indeed, be kept artificially low only by continuous new injections of currency or bank credit in place of real savings. This can create the illusion of more capital just as the addition of water can create the illusion of more milk.”

Alan Greenspan was indeed “The Maestro”, and what he orchestrated was The Great American Liquidation– a kind of yard sale where we could grab and quickly spend a few cents on the dollar from broken up pieces of hundred year gains.

By Les Lafave

Abolish The Federal Reserve –