The Fall of a Free Market Prophet

The most interesting, and perhaps the most important, moment in philosophy in the last decade occurred on October 28, 2008, in a hearing of the House Oversight Committee, chaired by Congressman Henry Waxman.

The statements were made by Alan Greenspan, Chairman of the Federal Reserve from 1987 to 2006.

Ah, Alan Greenspan .... The Maestro, the Wizard. Just one year ago when CNBC did a TV special about him, it's title was "Judging a Giant"!

"By the dawn of the new millennium, it was nearly impossible to find anyone in America who wasn't gaga over Greenspan. Democrats and Republicans, Wall Street, and Main Street, dogs and cats -- all were high on the Fed chairman."

Justin Martin, Greenspan: The Man Behind Money.

Now it's 2008. The NY Times ran a piece called "The Reckoning: Taking a Hard New Look at the Greenspan Legacy," and Alan's in the Bubble Hall of Shame.

Alan Greenspan was an Objectivist.

It's hard to know if he's still one or, if he's not, when and why he stopped.

Even the Objectivists don't know. Their official website says: Although he is not famous as an Objectivist (nor is it clear that he still considers himself an Objectivist), arguably the most famous person associated with Objectivism is Alan Greenspan.

What, you may ask, is an Objectivist?

An Objectivist is a follower of Ayn Rand. She was a writer. Her most famous book is a novel, Atlas Shrugged. In it, the capitalist entrepreneurs go on strike against the collectivist shlubs - government, the unions, and the working class in general - all of whom leach off of the great men, and the world collapses.

The capitalist leaders go off to the wilderness to form their own little utopia, where they build railroads that run on time and airlines that never crash, and have hot, gorgeous, young, college educated heiresses desperate to bed them. They are also very fit and hunky - the entrepreneurs, that is, - who are all male.

It's sort of a post-Nietzsche vision of supermensches. In it the only route to virtue is "a full, pure, uncontrolled, unregulated laissez-faire capitalism--with a separation of state and economics, in the same way and for the same reasons as the separation of state and church."

She established a group. She was the leader, was surrounded by acolytes and devotees. Alan was among them.

Objectivists like to walk around with gold jewelry, a broach or a tie pin, in the shape of a dollar sign.

Ayn Rand's real name was Alissa Rosenbaum.

She was a Russian Jew. Suddenly, I had a whole new vision. I understood.

There's this thing about Jews. Pardon me, as I plunge into ethnic stereotyping here. But as one, via Latvia and Belarus, I claim a certain latitude.

Even after saying that, please, if you are without a sense of humor, if you find yourself watching the Daily Show or Bill Maher, and don't laugh, please stop now. If you are an actual anti-Semite or feel inclined to assault Christians, Muslims, Communists, nuclear physicists, or encourage others to so, please stop now, and don't quote me. If you are under 18, that's completely irrelevant.

Here's the thing about Jews.

They like to think. Nudge one, and a philosopher begins to spout. They have a theory, about the world, God, food, love, human relations, politics. It's happy, it's sad. It is, especially, utopian. Jews always have these theories about how the world could be made perfect.

They're good at it. They make up great theories. Partly because they're just theories, and partly because Jews are normally the underdog, there's almost always a humanistic heart beating beneath the ideologies they invent.

But then, from time to time, a gentile gets hold of one of those theories, and, boy oh boy, there's trouble.

For example, you have Jesus. Nice ideas, very friendly, be good to the poor, "he who is without sin, cast the first stone," like that.

The goys take it over, and next thing you know, you have the Spanish Inquisition.

The Arabs pick it up, turn it into Islam, and what's the first thing they do? They make the Jews and Christians second class citizens. Which is nothing to what they do to polytheists.

Karl Marx, Fredrich Engels, they're saying "from each according to their abilities, to each according to their needs." Saintly sentiments. They write a couple of books, a movement starts, you turn around and you're looking at Joseph Stalin and Mao Tse Tung and a few million peasants are uprooted and slaughtered.

Albert Einstein figures out that mass can be turn into energy. The gentiles find out, and it's bye-bye Hiroshima, syanora Nagasaki.

So I figure she meant what she said, and she wanted to be taken seriously, and she wanted people to believe her. But in her heart of hearts, she didn't ever really think that people would live that way. Or in her head of heads, she never understood what happens when they try in the real world.

Anyway, that's where Alan Greenspan came from.

His mind was full of Objectivist ideas. A belief that humans were rational. That self-interest would guide unregulated capitalist to do only sane and sensible things. Not every capitalist all the time, but enough of them often enough, that a capitalist system would be inherently beneficent and operate for the good of all.

Free market capitalism - as a faith - really is an inverse of Marxism. It is a theology that believes their system will bring paradise on earth and moral perfection. When their system is in power in the real world, their true believers claim that any problem only happened because their ideology has not been applied with sufficient purity.

Alan did very well for himself. He ran a consulting company that made tons of money. He was on the board of directors for Alcoa, Capital Cities/ABC, Inc., General Foods, Inc., J.P. Morgan & Co., Inc., and more. He dated Barbara Walters.

In 1987, Ronald Reagan appointed him as Chairman of the Federal Reserve.

He stayed on through Bush I and Bill Clinton

Then along came George W. Bush.

He was one of those gentiles. The kind who would take a Jewish idea, whether it was Christianity or free market economics, and ride it's ideology as far as circumstances would allow, unaware that he'd left it's humanistic heart behind.

With nobody to restrain him, Greenspan put his full faith in the markets. He kept interest rates low. Which pumped money into the credit markets. He resisted regulations. When he was warned that real estate was blowing a big, big bubble, he refused to act.
Why?

Because he believed in the inherent virtue of markets.

So there he was, being quizzed by one of the heroes of the House of Representatives, Henry Waxman.

First, Greenspan said, in a prepared statement, "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

Well, yes. One of the fundamentals of conservative, free market, laissez faire, Objectivist economics is that business people will act sanely and sensibly, thereby protecting people who trust in them. That's a theological belief. Now, watching the bubble burst, Greenspan was doing a remarkable thing, and he does deserve some credit for it. He was acknowledging reality!
Then he said, "I made a mistake in presuming they were best capable of protecting their own shareholders." Which means they need to be regulated. By someone else. By government.
"In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said. Meaning this notion that individual greed would, as if "guided by an invisible hand," lead to the greatest social good.

"Absolutely, precisely," Greenspan replied.

The acolyte of Alissa Rosenbaum, the apostle of Adam Smith, the enabler of George W. Bush, had acknowledged that their god - the free market - had failed.

Larry Beinhart is the author of Wag the Dog, The Librarian, and Fog Facts: Searching for Truth in the Land of Spin. All available at nationbooks.org

His new novel is: SALVATION BOULEVARD. Website: larrybeinhart.com

Responses can be sent to [e-mail]

Comments

[AViirlaid]

Larry thanks -- good article.

But your conclusion puzzles me.

You write: The acolyte of Alissa Rosenbaum, the apostle of Adam Smith, the enabler of George W. Bush, had acknowledged that their god - the free market - had failed.

Free Market?

When someone fixes the price for a commodity, most especially money, how is that the "free market".

I agree that the "Free Market" failed because it was murdered.

Central Planning, a Command Economy, Price Controls, Social Engineering --- what comes to mind?

Soviet Union?

No, the FED!!!

[rationalinfidel]

Larry,
That you try to associate Greenspan with Ayn Rand and the philosophy of Objectivism is very telling. Anyone who knows anything about either would know that Greenspan as the Chairman of the Federal Reserve represents the antithesis of Objectivism.
The Objectivist philosophy rejects government intervention in the economy for reasons that are all too apparent today. But you try to obfuscate that fact.
"By the dawn of the new millennium, it was nearly impossible to find anyone in America who wasn't gaga over Greenspan. Democrats and Republicans, Wall Street, and Main Street, dogs and cats -- all were high on the Fed chairman."
Well, all you would have to do is talk to anyone who endorses the Objectivist philosophy.

[pmover]

from the article: "Greenspan put his full faith in the markets. He kept interest rates low. Which pumped money into the credit markets. He resisted regulations."
The above quotation is either glaringly shortsighted or intentionally misleading. Greenspan did not resist regulations; he WAS the regulation! You said it right - he "kept interest rates low." Doing so by governmental order is the very definition of regulation, in perfect contradiction to your last sentence quoted above. By imposing national controls which affect all segments of the financial markets, "The Fed" - formerly Greenspan - is in principle directly anti-objectivist.
I agree with you that Greenspan's forced rate lowering inflated the "bubble" which has now unceremoniously burst. But to assert that his actions or the office he held were at all capitalist or objectivist is absurdly wrong. To hold either of these ideologies responsible for any of the current crisis is worse. As your own article proves, their opposites were the only philosophies being practiced.

[jhNY]

Sounds like another believer without much taste for reality, especially after a few big mouthfuls, is now retreating to the notion that the actors failed the belief system, which cannot fail because it is perfect, but will only appear to fail if people mistake the mistakes by its practitioners for the proper exercise of the perfect philosophy.

[pmover]

Don't be confused by jhNY's Faulkner-esque, multi-clause bombast. I'll translate: he/she asserts that Greenspan is a capitalist/objectivist ("its practitioners" being nonspecific). Wrong. Alan Greenspan = The Fed; The Fed "kept interest rates low;" keeping interest rates low applies external control on the market; external market controls are anti-objectivist and anti-capitalist; therefore Greenspan acted as an agent of neither.

Ask yourself when reading commentary like jhNY's, "why? where is the proof?" You will find that vagueness and generalities are their weapons and their facade; facts frustrate and get in the way of their arguments. Decide whether our economy has been laissez-faire for yourself, but examine the facts to do so.

And since you mentioned them, I thought you'd be interested in objectivism's real practitioners. While statists applauded The Fed for building the economy, objectivists questioned false wealth vs. real value (research "fiat currency" for a broader perspective of how the two can be discordant). Objectivism's real practitioners warned about the bubble created by market manipulation and were laughed at repeatedly for their accurate "pessimism" (http://www.youtube.com/watch?v=2I0QN-FYkpw). Reason is a powerful force, isn't it?

[WASanford]

If only those scam artists had actually gone to their objectivist paradise described in "Atlas Shrugged," perhaps we would have been left to build ourselves a viable economy. While they were trying to make their self-serving ideology work and blaming impurity for its failures, we could have been creating real wealth for ourselves and our societies. Not one of these crooks has ever had a blister on his hand from doing real work. They push paper around and count the numbers while they exploit those of us who actually do the work. What a racket!

[CanuckII]

The INVISIBLE HAND of the market may work in good times, with each market participant's greed leading to the common good, but in bad times it becomes the INVISIBLE FIST -- each participant doing what's best for it and destroying the common good. Company A which reduces payroll in bad times is doing what is good for it -- in the short term. Those unemployed people are also consumers who cannot buy products from Company B, C, or D, so they reduce payroll. Their former employees cannot buy from Company A (or B, C ,D or others). This is how depressions get started. Without consumers there is no market.

[metropixie]

This is a well-written, concise, and illuminating piece that addresses at once several thoughts spinning in my head for a while. They have now come to rest"peacefully, but in the graveyard of ideologies no stone will be left unturned, and so free-market zombies will rise again in the night and greedily try to retake whatever control may have moved into the hands of the masses by way of bailout socialism.

[Henry]

Larry,
There was a bubble during slick Willie's regime. It was referred to as the dot.com bubble. It was not only Alan Greenspan who derided it as "irrational exuberance" but it was Al Greenspan, the head of the Fed who started to up the base rate, the Fed Funds rate threatening the "boys" in that den of inequity (wall street) to pay a steeper price for their speculations. It was a boom that was trimmed, and it was the myopic Al, himself who appeared to have a grown-up, mature vision of it all. Then we move into the funny money era of carry-trades, swaps, and securitizations of subprime loans that were rated "AAA". What is it about the word "subprime" that is so complicated for people to understand? If you recall, it was Al himself who recommended to the public to avail themselves of these deals. A central banker who cannot understand the profligacy of negative real interest rates is not someone who should be in charge of the money supply....and, isn't he a contradiction of everything that he espoused? (I mean the central bank sets the rates...and not the market)

[mwickens]

"It's hard to know if he's still one or, if he's not, when and why he stopped.
Even the Objectivists don't know. Their official website says...."

That's not an official website. Here's some interesting reading from an associate of Ayn Rand:

http://www.capmag.com/article.asp?ID=5353

and from the actual "official" Objectivist organization:

http://www.aynrand.org/site/News2?page=NewsArticle&id=21757&news_iv_ctrl=2703

[23000Days]

Larry, the truth of your observations makes it difficult to laugh!

[montemalone]

Anarchy (every man for himself) doesn't work.

I wish we could let these free market pure believers suffer their own actions.

Instead, they get to keep their profits from years past, and we get the losses for years ahead.