Alan Greenspan on laissez-faire Economics
During a hearing earlier today on Capital Hill, a most interesting exchange was recorded between former Federal Reserve chairman Alan Greenspan and Representative Henry A. Waxman. The following conversation was recorded:
Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”
Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.
“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
For a quick background, Alan Greenspan is the one held most responsible for loosing credit restrictions, lowering the reserve requirement, and cutting the interest rates during the 1990s. Greenspan’s basic economic philosophy was that an extremely free-market system was the best form available. He is most often criticized for keeping low interest levels too long and making home ownership too easy.
Apparently, he’s found a flaw. Maybe unfettered capitalism doesn’t work quite so well after all. Already there are many assigning a large degree of responsibility to Greenspan for the housing bubble, the sub prime crisis, and the subsequent economic collapse. One assigners of blame is Noble prize-winning economist Joseph Stiglitz. Stiglitz has been recorded saying that Greenspan “didn’t really believe in regulation; when the excesses of the financial system were noted, [he and others] called for self-regulation—an oxymoron.”
Unregulated capitalism and sustained growth is another one of those oxymorons. It’s about time the Austrian school of economic thought be buried 6 feet under.
h/t: Economix
I hope this isn’t incoherent babbling but I have a intense dislike for the oracle of #$%@#$%!@#$%.
To make a long story short here’s why:
Reagan put ~!@#$#@!% in charge of social security task force.
Reagan along with @#$%^!@#$ gave a “iron clad guarantee” on the social security trust fund.
They raised the SS rates and everyone HAS BEEN PAYING A OVERAGE since the early 80′s
The surplus according to @#$%^&!@ was supposed to go to paying down the national debt so when boomers retire the nation would be on firm financial footing.
@#!@#$%!@ agreed that if the surplus did not reduce the national debt it would be the biggest boondoggle of the working class in America
@#$%@#$% and his buddy W basically took the excess and has given it to the top 5 % income earners as a tax break while plunging the US in trillions of dollars of debt.
Grenn#$@%^ is a lying sack of crap who now says we must cut social security benefits.
Green@#$@#$% has screwed every working person in America since the early 80′s.
Sorry don’t mean to offend but a lying sack of crap is a lying sack of crap.
Don’t hold back, Ken. Tell us how you really feel…
Four posts by Steve in a row?
Very funny. As if the federal reserve is a free market institution. austrian economics is the school of thought most opposed to central banking. nice try. no dice.
“The most serious financial problem for the Nazi State is not the danger of a breakdown of the currency and banking system, but the growing illiquidity of banks, insurance companies, saving institutions, etc. . . . Germany’s financial organizations are again in a situation where their assets which should be kept liquid have become ‘frozen’. . . . But the totalitarian State can tighten its control over the whole financial system and appropriate for itself all private funds which are essential for the further existence of a private economy. Yet the institutions which still exist as private enterprises are not allowed to go bankrupt. For an artificial belief in credits and financial obligations has to be maintained in open conflict with realities.”
From Gunter Reimann, The Vampire Economy: Doing Business Under Fascism (1939), p. 174, about German economic policy under Hitler.
Greenspan’s philosophy was to loosen the controls of the Federal Reserve over credit and to limit the restrictiveness of monetary policies. If you knew anything about the Austrian school of economic thought, when it comes to credit control, you’d know Dr. Greenspan was a major advocate.
But you quote business under fascism, as if we’re a fascist state. Nice try. No dice.
You deny the obviousness of the quote? Why?
Equating Greenspan with laissez-faire economics is flawed on its face. Have you read Greenspan’s essay Gold and Economic Freedom? That is the closest he ever was to a misesian. (He is allegedly objectivist)
Whatever sympathies he may claim to have regarding the austrian school are of no consequence. In praxeological terms, man acts, and he acted in complete contradiction to the economic law that people saw Greenspan elaborate on so eloquently before he turned into the welfare statist he should be equated with.
ABCT [austrian business cycle theory] is essential to understanding the effects of fractional reserve banking. Greenspan shows no understanding of this relationship based on his constant overstimulation of the economy through his rejection to allow adjustments to occur (rescession). His genius is proven by the boom that lasted so long. Unfortunately the bust brings the whole picture back into reality.
Another issue that could be brought up at this point would be the Bagehot Problem. But that is beyond the point being made here. But it would highlight the obvious tendency by central banks towards insolvent institutions and again reinforce the quote above by Reimann.
Central Banking is central planning.
Austrian school economists, more than any others, advocate for free banking, not central banking. Period.
Back in the day….
Rothbard on Greenspan
http://mises.org/econsense/ch83.asp
I’ll come back to this.
any new thoughts?
hows that know-nothing do-something congress working for everyone anyway? oh that’s right, the people don’t get it either. makes sense then.
oh well, i guess it gives renewed meaning to “getting what we ask for!”
“we have met the enemy, and he is us”
Under the discussion of the Austrian School of Economics in an economics book I have, Greenspan’s policies were mentioned. The point being his policies were much more laissez-faire than were Volcker’s. That’s really the only distinction I was making.
That’s really all the more I had to add. I was going to say a lot more, but I really don’t feel like it.
Just because Greenspan didn’t understand the true Austrian school of thought, doesn’t mean his policies aren’t similar to the philosophies basic understandings of the economic cycle.
Perhaps I should have said he was heavily influenced by the Austrian school.
I guess the fact that “Greenspan’s policies were mentioned” is all you need to draw a conclusion?
“his policies were much more laissez-faire than were Volcker’s.”
If that was the distinction you meant to make, you were very far from making it.
You continue to target the Austrian School for reasons that are un-beknownst to me. It sounds like your book is either wrong or you need to re read that part.
you are very inconsistent here:
1- “Just because Greenspan didn’t understand the true Austrian school of thought”
2- “he was heavily influenced by the Austrian school.”
3- “his policies [are] similar to the philosophies basic understandings of the economic cycle.”
so… he understands that he was heavily influenced by something he doesn’t understand?
besides, you still miss the biggest flaw that i pointed out above: the ‘federal reserve’ is NOT a free market institution.
Is your economics book a college textbook by any chance?
Just take out the last sentence of the post out. Obviously, it was a tongue-in-cheek sort of comment that offended you.
I was just making fun of Greenspan for the stupidly self-incriminating statements he made and the fact that he can be largely blamed for the housing bubble. Don’t take much further than that.
I find it amazing that you think you can place so much blame on one guy when the problem is not a man, but a policy. In fact, it is an “essential” component of our current government and many others around the world.
Why don’t you understand the power of the Fed? Why can’t you see the Fed as having a disastrous effect on the economy here and around the world? Why do you insist on targeting an idea instead of the actual monetary policies that exist as the problem?
I think it is because you either understand its significance and prefer to think you can use the power to your benefit, or, you don’t understand what the Fed does and find it easier to blame some guy with an idea (however contradictory that idea is in contrast to his actions).
In the end it seems that you only see the problem as not having enough power vested in the state despite all the evidence that the state and its programs hold a considerable amount of blame.
It baffles me that you are willing to let that slide just so you can offhandedly (and wrongly) bash an idea.
I don’t agree with what you write all the time, but I like what you do enjoy what write about and the comments you make. But this post is just wrong.
“It’s about time the Austrian school of economic thought be buried 6 feet under.”
http://www.google.com/trends?q=%22austrian+economics%22
gee, sure looks like “austrian economics” is real popular according to the graph above!
hmm, i wonder if ron paul had anything to do with the spike in interest of such ideas?
http://www.google.com/trends?q=%22ron+paul%22&ctab=0&geo=all&date=all&sort=0
you see, if nixon had said “we’re all austrian economists now”, i’d be in agreement with you that it’s time to bury this idea 6 ft under, one problem: he didn’t say that.
I understand the function of the Federal Reserve. That is, to control the money supply through credit controls, reserve requirements, and the like.
I also know that Austrian School of Economic Thoght has had a tremendous amount of influence on people like Alan Greenspan. I also know that there is much blamed heaped upon him by figures like Stiglitz, who say that the loosing of credit controls in the 1990s caused the quagmire we’re in today.
Now, is the root of the problem the Federal Reserve? Perhaps.
Greenspan (1966)
“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.”
….” A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.”
Now where is that Greenspan we know from 1966 to be seen today? His former position as described above is nonexistent and ultimately betrayed in light of his acceptance of appointment to the Federal Reserve board. He cannot be used as an example of laissez-faire due to the lack any evidence. His alleged ideology is only rhetoric.
It should be obvious that the attack on his supposed ideology is a result of ideology and/or political motivations. It is not the result of a critical assessment of the evidence to support such a claim. We could discuss the actual mixed economy (as opposed to the misnomer that this nation has a laissez-faire economy) as another example of why there is so much confusion over this simple fact.
What is being discussed is the “correct” role of the Fed (as opposed whether laissez-faire is to blame or not: that argument is not widely supported due to the lack of evidence). This is a problem because it becomes an issue like that of Iraq. Instead of discussing whether the US should invade or not, it is just accepted as necessary (for a variety of political motives), and all the bickering is confined on how best to produce the desired results (whatever they may be).
Did the Fed Cause the Housing Bubble?
http://mises.org/story/2936
Hamilton’s Counterfeit Capitalism
http://mises.org/story/3254
By the way, here’s the quote from the book:
“[T]he Austrian school have reached far into the future from when most of them practiced and have had a profound and, in my judgment, probably an irreversible effect on how most mainstream economists think in this country.” (Greenspan in 2000)
The quote is also on the Wikipedia page about the Austrian School under the subheading “influence.” How about that?
“influence” is such an abstract term though.
i am speaking in terms of actions. in terms of what can be known and measured. in terms of a policy that is undertaken by a state administrative system. i am not speaking in such abstract terms as “influence” on just
one man.
how are you measuring greenspans influence? where is the alignment concerning principles of a free market and the practice thereof?
whats your evidence that he actually works towards such a grand idea? is he a double agent? is he somehow thwarting the central planners plans by acting as fed chairman?
i think i can and have shown quite simply that any supposed ‘austrian’ “influence” is insignificant in light of the the actual working facts on the ground,
where is the gold standard for instance? or free banking? and the repeal of legal tender laws?
how does greenspan represent any of that?
i guess we should also believe bush when he says he favors a free market even though in reality he is practicing forms of socialism and fascism and militarism by using the power of gov’t to nationalize banks and bailing out financial institutions and invading nations around the world.
it’s totally preposterous
The Myth that Laissez Faire Is Responsible for Our Present Crisis
http://mises.org/story/3165
“Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force.”
“Government spending in the United States currently equals more than forty percent of national income, i.e., the sum of all wages and salaries and profits and interest earned in the country. This is without counting any of the massive off-budget spending such as that on account of the government enterprises Fannie Mae and Freddie Mac. Nor does it count any of the recent spending on assorted “bailouts.”
“There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with …the economic freedom of the individual”
“The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions”
“the Federal Register contained fully seventy-three thousand pages of detailed government regulations. This is an increase of more than ten thousand pages since 1978″
“And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level.”
“Beyond all this is the further fact that the actual responsibility for our financial crisis lies precisely with massive government intervention, above all the intervention of the Federal Reserve System in attempting to create capital out of thin air, in the belief that the mere creation of money and its being made available in the loan market is a substitute for capital created by producing and saving.”
You cannot bring any free market principles into the job of the Fed. The Fed chair is a job, unrelated to free markets. The Federal Reserve system is a non free market entity period! it’s presense, it’s function and operations are in direct contrast to anything that has to do with free marekts or Austrian Economics. You can’t say that he operated in a free market way or what ever, his operations are “socialistic” in nature regardless if he has a tight or loose credit policy, whether he favors more or less regulation (under the current system), etc..
The fact that the man (Greenspan) envys the Austrian school doens’t mean that it has something to do with his actions as Fed chair. Perhaps he took the job because he saw the career opprutunity, but it does not mean that it has anything to do with Austian economics.
If I follow your logic, I could just as well take the fact that Greenspan is Jewish and conclude that the Jewish philosophy proved to be flawed as far as the Fed is concerned. Does that make any sense? That is how absurd your correlation between the Fed operations under greenspan and Austrian economics.
how about you learn some Austrian economics next time before you make absurd claims. And I don’t care what nonesense Greenspan testified before congress. What did you want him to say? It’s my fault, or that the system is flawed (after he’s been its chair for nearly 2 decades). he’s going to opt for the scapegoat like all central planners.
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Everytime someone references Alan Greenspan or any official with the Fed as a “lasse-Faire” capitalist I cringe at the extreme irony of it all. As his entire organization is the exact opposite of such.
The only reason why people would reference greenspan with Lasse-Faire capitalism is because they are economically ignorant.
Just because Greenspan claimed he was a proponent of Free trade does not mean he is the icon and manfistation of free-trade in person. Hitler was borne into power as a retaliation to socialism. Was he a free-trader to?
Greenspans organization and his methods of doing things we’re quiet the opposite of free-trade. Calling a rose by any other name does not change the fact that it is a rose. Likewise, calling fascistic and socialistic organizations like the fed “Free-Trade” doesn’t change the fact that its NOT free trade and poses the single greatest threat towards the functionality of capitalism as a whole.
If you truly believe that greenspan and the fed belong on the “lasse-faire” side of things. Then your sadly an idiot. Please start reading literature outside of the mainstream media.
SO far as I am concerned watching/reading mainstream media is the same as taking drugs or abusing alcohol. Both methods have proven to null the minds of our society. It’s utter garbage, just as this article.
In addition
@ SC Denney,
Actions speak louder than words. And if greenspan said the Austrian school was of influence to him it went no further then the last page of any book he read. He has never done one thing even halfway acceptible in the realm of Austrian economics. His whole position and existence is a fallacy in the Austrian School. The austrian school of economics and all it stands for is 110% against the entire idea of the fed. Apparently they didn’t influence him enough to make any major difference. His entire moral premise is based on monetarism and support from Keyneseism through the gov. NOT Austrian EConomics. TO compare him so only proves your ignorance.
TO Quote you.
“If you knew anything about the Austrian school of economic thought, when it comes to credit control, you’d know Dr. Greenspan was a major advocate.”
Too bad you don’t know anything about the Austrian school. Because they are against any sort of “Credit Control”
This is one that I never thought would be Godwinned. Wow.
Can you explain Godwinning for us newbies?
http://en.wikipedia.org/wiki/Godwin%27s_law
“Godwin’s Law is an adage formulated by Mike Godwin in 1990. The law states: “As a Usenet discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1.” References to Godwin’s Law often actually refer to a corollary of it which determines that the person who first makes an unwarranted reference to Nazi Germany or Hitler in an argument loses that argument automatically.”
Thank you very much. You know you throw in the Austrians, it’s just a matter of time. ;)