Mainstream Media Helps Pad the Greenspan Myth

This week, former Fed chair Alan Greenspan was on tour promoting his new book, which by the way, isn't titled Sorry for the Mess I Made. When you look at the environment that existed during the run-up to the banking/housing collapse and the ensuing Great Recession, no one has their fingerprints on more bad ideas or missed opportunities than Alan Greenspan.

Yet rather than take him to task for his failures, the mainstream media has inexplicably given him a pass in interviews, while he hawks his book and tries to rehab his tarnished legacy with a blend of massaged history and economic quackery.

The Map and the Territory was released on Tuesday and Greenspan's interviews have confirmed what advance reviews had warned: if you're looking for repentance, don't hold your breath. Greenspan seems to have learned very little from the economic collapse. Not that that should be surprising, as he's clearly spent much more time developing a narrative which supports the idea that the bubble was both unforeseeable and unrelated to his policies, than contemplating where he went wrong.

Greenspan blames a new brand of “irrational risk-taking” that even the best methods of economic forecasting (presumably his) cannot overcome. It sounds like a narcissistic rebuttal that amounts to: even when my superior logic fails, it's only because other actors in the system are behaving illogically. I suppose if you look at the world from that angle, it's not hard to write a 400-page book describing why a complete disaster on a field in which you had more influence than anyone in the world really had nothing much to do with you.

Greenspan's unwavering faith in free market dogma and seeming absence of concern for systemic fraud, or at least a belief that it's best remedied by the natural dynamics of the market, is an obvious roadblock to any real contrition. But as instrumental as deregulation and a pervasive disinterest in all bad behavior so long as the ship was smoothly sailing were in enabling the tremendous magnitude of the 2009 collapse, there is one thing that is sorely lacking in any truly retrospective analysis; and that is the idea that pivotal changes to the system itself have created perilous new dynamics in the push and pull between politics and policy.

There's little said about the idea that Greenspan and his predecessor, Paul Volcker, were the two Fed chairs who managed the United States monetary system through a brand new age of fiat currency that followed the collapse of Bretton Woods. It is no small matter that for most of the economic history we compare modern times to, there was no such thing as a petro-dollar and hard currency created natural dynamics with trade deficits/interest rates/inflation that today only really exist for countries that don't begin with United and end with States.

I've noted before that one of the inherent weaknesses in the U.S. being the country in possession of the world's reserve currency, and therefore the only one who can settle their accounts by simply printing more of their own money, is that any sensible policy that's even a little hard to swallow won't happen in an election year – which is exactly 50 percent of all years. In such a system, a person with the clout and platform of a Fed chair should be the remedy.

Greenspan's decisions – and the arguments used to justify them – always seemed to perfectly reflect whatever was most palatable to the political class he favored, namely conservative, small-government Republicans. Keeping interest rates artificially low was not just a band-aid on an economy that was suffering from other ailments. It was a dirty band-aid that caused an infection much more serious than the initial wound – and appeared exactly so to many economists that history has proven to be smarter than Alan Greenspan.

Greenspan cheered on irresponsible tax cuts paid for with borrowed revenues, while flooding the market with cheap money delivered through fraudulent vehicles (think liar loans and sub-prime fiascoes) that pushed the economy forward via unsustainable practices (like hyper-inflating the housing market and allowing banks to become dangerously leveraged). It's also worth noting that these dynamics were made possible by all of the deregulation he so enthusiastically supported. 

Considering where that took us and how central the roles of those policies have been, that's not much of a record. When you also consider how consistently wrong Greenspan has proven in his analysis and predictions since leaving the Fed post – and how they have (surprise) remained little more than lock-step arguments in favor of policies promoted by his political allies – Greenspan's legacy seems like little more than that of a political hack whose job it was to reverse engineer some sort of plausible economic argument for policies that benefited politicians on his team.

It's well known that Greenspan is a former acolyte of Ayn Rand, whose dystopian fantasy Atlas Shrugged is almost a religious text in some conservative circles. I find that most ironic, considering that professionally, Greenspan most resembles Rand's Wesley Mouch character, the archetypical political opportunist who finds a way to enrich himself doing just that. Nobel Prize laureate, Princeton Economics professor and New York Times columnist Paul Krugman recently called Greenspan the worst ex-central banker in the world. That may have been too kind.