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The general public wants to blame the United States president for the health of the U.S. economy, but there is a man behind the scenes who has much more influence over economic conditions, about whom Schoolhouse Rock never released a cartoon.
Now there's a misinterpreted saying according to which one is not to say anything critical about a deceased person, but I doubt when Stalin died everyone talked about how nice he looked in a suit.
No doubt the gratuitous airing of a deceased man's peccadilloes is in poor taste and serves no good purpose, and in general we ought to avoid attacking people who cannot defend themselves.
However, as historians we must surely render judgment on the actions of a consequential person who affected the course of history -- otherwise we would fall into the trap of failing to "learn from history," as the hackneyed maxim goes. After all, wrote Shakespeare, "The evil that men do lives after them; / The good is oft interred with their bones."
Alan Greenspan, former chairman of the Federal Reserve System, just died at age 100.
Greenspan spent some time early in his career as an Ayn Rand acolyte, and in fact three chapters of Rand's book Capitalism: The Unknown Ideal, were written by the future Fed chairman. (Ron Paul owned a copy of Ayn Rand's newsletter in which the Greenspan chapter "Gold and Economic Freedom" originally appeared, and even got it signed by the author.)
Greenspan's opponents on the left therefore interpreted his whole career through a Randian lens, which serves to remind us how stubbornly they refuse to understand the world. Had Greenspan wanted to run the Federal Reserve in such a way as to approximate a gold standard as much as possible, he could certainly have done so. Instead, he used it as an instrument for central planning, with disastrous results.
Initially, Greenspan could do no wrong. He became known as "The Maestro," effortlessly conducting the economy through treacherous waters.
The New Republic ran a story co-authored by Stephen Glass about a Wall Street firm that had built a literal shrine to Greenspan, complete with dozens of news photographs and quotations from Greenspan's speeches, and a red leather chair cordoned off by blue velvet ropes, where Greenspan had allegedly sat in 1948. Traders from the firm claimed they would sit in the chair for "inspiration" after losing money; brokers said they literally prayed to Greenspan and used a software program called "The Talmud of the Federal Reserve."
That was a fake story and there was no such firm (the Stephen Glass oeuvre of fake stories was eventually exposed, and in fact became the subject of the film Shattered Glass), but the fact that a story like that seemed plausible enough as to have aroused no suspicion tells us something.
Meanwhile, Greenspan's contempt for the public was legendary: he confessed to Lesley Stahl of CBS that before congressional committees he would speak gibberish -- a tactic he called "syntax destruction."
The next day the headlines would report two different things about what he had said, and for Greenspan that meant he had succeeded.
Greenspan's policy moves (like arranging for a bailout of Long Term Capital Management in 1998) gave rise to the belief in a "Greenspan put," according to which investors could be assured that the Fed chairman was prepared to use the tools at his disposal to backstop the market if it should ever fall below a certain level.
And of course his monetary stimulus after the dot-com bust in 2000-2001, which looked to some observers at the time as a brilliant move, only delayed the reckoning, and transformed that bust into a real estate bubble (and eventual bust).
When the lights of the economy should have turned red, Greenspan made them all green. That was the only recession on record in which housing starts rose rather than fell.
The Federal Reserve, like the government itself, has no real goods at its disposal, so while its various tricks can redistribute resources and simulate prosperity, it cannot generate real wealth. It simply arranges the economy into an unsustainable configuration that has to come apart.
Because of Greenspan's earlier association with Ayn Rand, and because the general public knows so little about the Fed, when the 2008 crash occurred, people generally went along with blaming "capitalism" -- even though the Federal Reserve is a non-market institution created by act of Congress and enjoying a government-granted monopoly, and even though Greenspan's manipulations overrode what the market was trying to say.
Greenspan's legacy is 2008, and the undeserved reputational damage that the market economy suffered as a result.
Tom Woods
P.S. I have an email list for entrepreneurs, too, since I like discussing things we can do to repair the damage the government and its central bank do to our pocketbooks instead of just writing essays about it.
Last week I invited them to a live event about which I said only: here's a recurring revenue model that doesn't involve any of the things I suspect some of you guys don't like (email lists, audience building, affiliate marketing, etc.), it's a genuine business, it involves something that is nearly always being overpaid for, and it can be done (in different ways) by both introverts and extroverts.
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So tomorrow I've got two sessions being held for you guys (at 3pm and 9pm Eastern) that lay the thing out -- you've never thought of it, and I'll be joining you in it. Click the appropriate link to reserve your place:
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