Thursday, October 9, 2008

Alan Greenspan and the Economic Meltdown

As the economy melts down, not enough attention is being given to the motivation of Alan Greenspan that led to his role—a major one—in causing this mess.

Greenspan, from the time he was in his late 20’s to now, has been an ardent follower of Ayn Rand and her view of extreme laissez-faire capitalism. In the early 1950s Greenspan joined Rand’s inner circle. He wrote for Rand’s newsletter and authored several essays in her 1966 book Capitalism: the Unknown Ideal, which in non-fiction form offered the economic philosophy presented in Rand’s novels, The Fountainhead and Atlas Shrugged.

Rand stood besides Greenspan in 1974 when he was sworn in to his first job in the federal government, as chairman of the Council of Economic Advisors under President Gerald Ford.

Greenspan’s close personal—and ideological—relationship with Rand continued until her death in 1982.

He was appointed chairman of the Federal Reserve by Ronald Reagan in 1987—and somehow stayed, through Reagan, the first George Bush, Bill Clinton and then the second George Bush, until 2006 when his fifth term as head of the Federal Reserve Board ended. He was replaced by Ben Bernanke—the person we see often these days trying to deal with the crisis.

Greenspan “didn’t believe in regulation,” says Nobel Prize-winning economist Joseph E. Stiglitz. His perspective was “self-regulation—an oxymoron.” For Greenspan, it was an oxymoron rooted in the Rand perspective.

Meanwhile, when the economy wobbled, Greenspan sought to deal with it by lowering credit rates precipitously—to allow people to get mortgages at rock-bottom rates thus creating what became the real estate boom. And he promoted adjustable rate mortgages.

As warnings came of this boom, which had sent the prices of housing up to stratospheric levels, going bust, Greenspan did nothing.

The New York Times, in the middle of its extensive October 9th examination of Greenspan’s “legacy” as Federal Reserve chairman and its link to the financial crisis, noted: “A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.”

The article, by Peter S. Goodman, declared: “Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences.”

How did such a fringe figure become central to the U.S. economy?

3 comments:

jackdoitcrawford said...

While you are investigating, please look into the hundreds of thousands of pages of regulations that confront businesses of every kind from Federal, state, and local governments. Then you will not say that we have an unregulated economy.

Mark Wickens said...

"when the economy wobbled, Greenspan sought to deal with it by lowering credit rates precipitously"

"Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free."

There appears to be some inconsistency here, either in Mr. Greenspan's ideas, or in the thesis being promoted here.

Actually, there's a problem in both: Alan Greenspan was not an advocate of a free market -- certainly not in any way Ayn Rand would recognize. (What kind of laissez-faire advocate uses government to dictate interest rates?) And there has been no "ambitious American experiment" with a free market since the 1800s. All kinds of government interference in the market have been increasing continuously.

Willyam said...

Karl Grossman is a very handsome daddy bear. I'd love to be cuddling with him and feel his arms wrap around me to keep me warm.