ALAN GREENSPAN mea culpa

[Ivan Raszl]

This came up on Facebook with my friends. Seems like an interesting interview. Did Greenspan found a flaw in Objectivism?

REP. HENRY WAXMAN: The question I have for you is, you had an ideology, you had a belief that free, competitive — and this is your statement — “I do have an ideology. My judgment is that free, competitive markets are by far the unrivaled way to organize economies. We’ve tried regulation. None meaningfully worked.” That was your quote.

You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price.

Do you feel that your ideology pushed you to make decisions that you wish you had not made?

ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not.

And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.

REP. HENRY WAXMAN: You found a flaw in the reality…

ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?

ALAN GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

[TLD]

This came up on Facebook with my friends. Seems like an interesting interview. Did Greenspan found a flaw in Objectivism?

No, he found a flaw in himself. When he went to the Fed, he was flawed.

He has never explained what does not work in the free market.

[Ivan Raszl]

No, he found a flaw in himself. When he went to the Fed, he was flawed.

He has never explained what does not work in the free market.

Good point.

[SapereAude]

What is there to think about it?

Greenspan has never been a friend to laissez-faire capitalism.

He gave a bit of lip sevrice to it for a time, all the while actively promoting a form of mixed economics that even a fool could only see would lead deepeer and deeper into statism.

Capitalism has never been disproven in real application because it has never truly been practiced.

[Ivan Raszl]

What is there to think about it?

Greenspan has never been a friend to laissez-faire capitalism.

He gave a bit of lip sevrice to it for a time, all the while actively promoting a form of mixed economics that even a fool could only see would lead deepeer and deeper into statism.

Capitalism has never been disproven in real application because it has never truly been practiced.

Thanks mate!

[softwareNerd]

I don't think Greenspan was alluding to Objectivism as being the fundamental ideology in which he found a flaw. My guess is that he is talking about the "ideology" that holds markets are always right at any particular point in time. I believe he gave up Objectivism as an ethical and political philosophy quite a while back. However, he held on to a false doctrine in Economics. This is the doctrine that markets can see ahead and predict things, and that any current state is the best possible state (a.k.a. the Efficient Market Hypothesis).

For example, before the economic downturn, some commentators were saying that the housing market had become a bubble. Greenspan would say that a bubble is impossible to predict, that the market as a whole has digested all the factors and that one ought to respect the wisdom of that market-derived consensus. Of course Objectivism would agree that the Fed should not impose its will on the market, but not because the market was right and the Fed was wrong.

As an analogy, consider a federal Food Czar who is clearly statist. He assumes that we "little people" don't know what to eat, and so he prescribes what grocers may and may not sell. Now, think of Greenspan as the food czar, and imagine that he has this weird assumption that people always act in their best interests and left free to choose will eat the healthiest diet ever. He uses that assumption and refuses to impose too many restrictions on people's diets. Then one day he says that he is shocked, and that his fundamental ideology of free and rational food choice has been shattered.

Wait though... isn't it good if the food czar refuses to imposes restrictions on our purchase choices, even if he does so for the wrong reason? Why is it a problem? The answer: it is only a problem if the food czar has also underwritten all health-care costs arising out of poor food choices, and if those costs -- when they arise -- are borne by the people who chose wisely, and are still healthy!

Greenspan was operating in an environment where the government had explicitly underwritten certain risks taken by banks, had implicitly underwritten certain risks assumed by the GSE's and where it was reasonable to assume that the government would step in and retroactively assume losses in other areas as well. In this context, part of Greenspan's job was to protect the government against having to pay in the face of such failures. he failed at it pretty miserably.

Clearly, it is not just philosophy that he does not understand; he's a pretty poor economist as well.

Edited May 11, 2011 by softwareNerd

[Ivan Raszl]

I don't think Greenspan was alluding to Objectivism as being the fundamental ideology in which he found a flaw. My guess is that he is talking about the "ideology" that holds markets are always right at any particular point in time. I believe he gave up Objectivism as an ethical and political philosophy quite a while back. However, he held on to a false doctrine in Economics. This is the doctrine that markets can see ahead and predict things, and that any current state is the best possible state (a.k.a. the Efficient Market Hypothesis).

For example, before the economic downturn, some commentators were saying that the housing market had become a bubble. Greenspan would say that a bubble is impossible to predict, that the market as a whole has digested all the factors and that one ought to respect the wisdom of that market-derived consensus. Of course Objectivism would agree that the Fed should not impose its will on the market, but not because the market was right and the Fed was wrong.

As an analogy, consider a federal Food Czar who is clearly statist. He assumes that we "little people" don't know what to eat, and so he prescribes what grocers may and may not sell. Now, think of Greenspan as the food czar, and imagine that he has this weird assumption that people always act in their best interests and left free to choose will eat the healthiest diet ever. He uses that assumption and refuses to impose too many restrictions on people's diets. Then one day he says that he is shocked, and that his fundamental ideology of free and rational food choice has been shattered.

Wait though... isn't it good if the food czar refuses to imposes restrictions on our purchase choices, even if he does so for the wrong reason? Why is it a problem? The answer: it is only a problem if the food czar has also underwritten all health-care costs arising out of poor food choices, and if those costs -- when they arise -- are borne by the people who chose wisely, and are still healthy!

Greenspan was operating in an environment where the government had explicitly underwritten certain risks taken by banks, had implicitly underwritten certain risks assumed by the GSE's and where it was reasonable to assume that the government would step in and retroactively assume losses in other areas as well. In this context, part of Greenspan's job was to protect the government against having to pay in the face of such failures. he failed at it pretty miserably.

Clearly, it is not just philosophy that he does not understand; he's a pretty poor economist as well.

Thanks, I will have to re-read this with a clear head in the morning.