Alan Greenspan Talk

It is no secret that Alan Greenspan was fond of President George H.W. Bush. Also, depending on the day of the week, critics maintain that Greenspan is a far right republican. Regardless of the fact and the allegation, Mr. Greenspan did not see fit to lower interest rates to reinvigorate the economy prior to the presidential election of 1992 when Mr. Bush—due to the “it’s the economy, stupid”—lost to Bill Clinton.

Despite the previous presidents who appointed Mr. Greenspan and who benefited from his low interest rate philosophy, he was reportedly surprised that after a meeting with president elect Clinton, they reached common ground. Clinton gratefully accepted Greenspan’s “deal” which in essence was that Clinton would raise taxes, which Greenspan would not oppose, and hopefully Wall Street would believe Clinton was serious about reducing the deficit. Wall Street did believe and the stock market blasted off throughout the remainder of the 90s.

However, in 1996 Greenspan did detect the “irrational exuberance” of the market and did his best to warn investors without starting a panic. This was difficult for a man whose slightest utterance shook markets around the world. What he did accomplish effectively was to gradually lower interest rates in increments to bring the economy back to level. Of course, it was then necessary to raise them again in an attempt to forestall inflation.

While Mr. Greenspan left his post revered by many stockholders and generally regarded as brilliant, the following years would prove full of blame and venom directed at the “Maestro.” 

Alan Greenspan met Ayn Rand through mutual acquaintances in the 1950’s when Greenspan was in his early 20’s. Greenspan was a “buttoned-downed, somewhat tightly wound” young man who was blessed with an intelligent, inquisitive and logical mind. He was obsessed with numbers and the gathering and processing of information from early childhood. Greenspan met regularly with other young intellectuals at Rand’s apartment for lengthy discussions on philosophy and theory.

Rand was born in Russia in 1905 and grew to adulthood amid revolution and upheaval created by the Communist takeover of Russia. In her early teens, her family was plunged into desperate poverty when the Communists won their final battle. At the age of twelve, Ayn was subjected to the basis of the Communist theory that “man must live for the sake of the state.” Given everything she observed and was subjected to on a first hand basis throughout her entire life, it is easy to see why she developed a philosophy that is a polar opposite of the inequities and injustice of the Communist theory.

Rand fled Russia in 1925, never to return, and began her new life in America. Rand married after her first year in the United States and began her writing career. Every book that Ms. Rand has written is still in print and has sold over 25 million copies. Through her books, newsletters and interviews she communicated her philosophy of Objectivism.

In a nutshell, the most controversial part of the Objectivism philosophy is that the purpose of one’s life is the pursuit of their individual happiness or self-interest; and that the only social system consistent with realizing this morality is laissez faire capitalism.

And this is the charge against Alan Greenspan; as an associate and “follower” of Rand, he adopted the Objectivism philosophy of laissez faire capitalism which states that private transactions between two individuals should not be regulated by the state. In other words, anything goes as long as all parties are in agreement.

Mr. Greenspan successfully guided the country through the ups and downs of the economy during his 17 years as Chairman of the Federal Reserve.

His critics now say, after he has been retired for five years that he did so with a laissez faire capitalism system which is responsible for the current economic downturn.

Alan Greenspan, former Federal Reserve Chairman—who left office in 2006 after serving for 18 years—has come under fire for a stand he made in a speech in 2011. He asserted, with the gravitas and certainty that he always has when making a statement—that the younger workforce of today is not as productive or committed as the Baby Boomers whom they are replacing.

He seems to believe the Boomers are the most productive, highly skilled and educated part of our workforce and they are leaving the labor force in droves.

Greenspan also apparently believes that the younger Generation X workers score poorly when matched up with the same younger workforce of other countries.

He is concerned about the declining incomes—when compared to those of the Boomers they are replacing—earned by Generation X heads-of-households who are on average 25 years of age. Greenspan says that this is a good indication that the earning capacity of the younger workers is declining and raises concerns about their productive potential.

Mr. Greenspan also suggested that America would be better served to hire more highly skilled and motivated immigrants to bolster the poor performance of Generation X.

I suppose the older Americans of every generation believe the new generation is not up to the task of maintaining and improving upon what has gone before.

I am certainly one of those older Americans who agree with Mr. Greenspan.

I do not assign blame to either the young American workers or the Boomers who raised them. The current crisis is not anyone’s fault. It is due to a confluence of events that nobody could anticipate much less stop.

Some of the causes are simple to identify in retrospect. The gravy train of prosperity rolled onward from the 1950’s without any major challenges for the Boomers to address. In the 1960’s and 1970’s, the social fabric of the country began to tear apart and it became alright to rebel against the system instead of fighting for it. If the draft had not been in effect and young men did not have to put their lives on the line and go to war in Vietnam, no one would have given a damn about what was happening 4,000 miles away. The internet and social media is certainly a factor; it seems like every time another major technological development comes along it produces negative results socially. Anyone can find the recipe for meth or nuclear bombs with the click of a key. God knows drugs are part of the problem.

It is simply too easy for the majority of people to make a living in America, there is no challenge to it. Less than half the citizens pay any income taxes at all and live on the 1 per cent paid by those who do excel. The entitlement programs available are enough for those who don’t want to exert themselves to make a better living than 95 per cent of the humans alive on the planet. Immigration, legal and illegal, has not created a melting pot of cultures, but instead groups of foreigners living together, observing the language and customs of the hell-holes they left to get here. The country’s legal system is being used to accommodate the demands of hundreds of disparate groups. America has lost the identity it enjoyed 50 years ago and a new one is emerging.

These reasons and a thousand more are where the problem lies.

I’m also worried but there’s nothing to do but let the dynamic play out and see where it takes us.

Alan Greenspan’s management of the nation’s economy during his nearly 20 years as Chairman of the Federal Reserve has drawn more vitriolic fire from more diverse opponents than any other Chairman in history.

Greenspan has a long record of averting multiple financial disasters and consistently invigorating the economy through a policy of low interest rates and light regulatory policy. These are the very things that critics point to when condemning him as the cause for the bursting of the housing bubble, the longest recession in 80 years and failures of small and large banks across the country. The sky-high unemployment and financial misery that also inevitably resulted from his policies, according to his critics, are still raging today.

Both the entities to the left of the aisle and to the right appear to be in agreement that Greenspan was the sole and direct cause of the financial meltdown.

John Taylor of Stanford University is the greatest and perhaps most credible critic of Greenspan’s economic philosophy. Many other foes of Greenspan seize upon Taylor’s writings to substantiate their own charges against Greenspan.

There are three components to Taylor’s analysis:

1. Greenspan deviated from the accepted formula that the Fed had employed for the last 20 years that resulted in low inflation, strong growth and mild recessions. Taylor identified the formula that resulted in this golden age and quantified it into a calculation known as the Taylor Rule.
2. The Fed deviated from the formula in 2002 through 2005 by suppressing interest rates at too low a level.
3. If only the Fed had held to the Taylor Rule, following the policies of the last two decades, the interest rates would not have been so low that they spurred the housing boom. Without a housing boom there would have been no resulting bursting of the bubble and therefore no financial crisis.

While this is a simplistic account of Taylor’s argument, it does map out the logic chain.

Greenspan’s defenders assert that the second link in the logic chain is patently incorrect. They acknowledge that the Fed deviated from previous financial policy but that it was necessary given the global economy of the time. They point out as proof of their argument that the housing boom began four years before the Fed made its policy deviation and while the economy was still enjoying its golden age.

Greenspan is comfortable sticking to his longtime philosophy stated in his oft-quoted view, "I was praised for things I didn't do, and I'm now being blamed for things I didn't do."