Alan Greenspan’s self- acknowledged errors

Alan Greenspan’s self- acknowledged errors

By Andrew Murray

Since the Financial Times is presently running a series on “Capitalism in Crisis” it makes every sense to ask Alan Greenspan to contribute. After all, the former Chairman of the US Federal Reserve has his fingerprints all over the current crisis of the system he worships. Indeed, if one man could be said to have brought the world to its present pass, it would be Greenspan. His fanatical belief in deregulation and in the dogmas of an absolute free market, allied to his continual flooding of the US with cheap credit during his time in charge (a policy which guaranteed the inflation of one bubble after another, including the terminal mortgage-loan one) could almost justify us terming the 2008-to date crash as the “Greenspan slump”.

Immediately after the meltdown, Greenspan was briefly rocked back on his heels. Summoned to explain himself to a Congressional hearing he allowed that he had, to paraphrase, misjudged the capacity of the bosses of the biggest banks to judge their own self-interest (and shareholder interest) accurately. When the chairman of the committee underlined that this meant that Greenspan had found that “your view of the world, your ideology, was not right” the dethroned maestro glumly acknowledged “precisely”.

This was quite a comedown for a lifelong disciple of Ayn Rand, the author of the capitalist utopian novel Atlas Shrugged. This is a badly-written book of unblushing misanthropy, but it inspired the young Greenspan and others of like persuasion fighting through the long Keynesian night of the 1950s and 1960s. They formed a cult around Rand (a Russian émigré) which, if accounts are to be credited, bore a passing resemblance to the carryings-on of the Workers Revolutionary Party in its Healey heyday.

Like the bourgeois elite generally, Greenspan has been recovering his poise somewhat since. Certainly, he is through apologising, although (as with those who say it is time to stop saying sorry for the British Empire) he never really got going on the whole repentance thing. But he faces a mighty challenge, not just because of events around him going from bad to worse, but because of the nature of his view of capitalism.

It is not for him simply the best of all possible systems from the options available, nor the natural product of social evolution and the march of freedom, to take two other fairly widely-held views. For him it is, or ought to be, perfect. Left to its own devices, free-market capitalism should result in utopia, with a complete absence of any problems for humans other that those which spring from the frailties of the heart – for thus spoke Rand, who herself was sometimes tripped up in her missionary work by the latter.

So how does the once unchallenged oracle of Wall Street, convenor of the “committee to save the world” (to cite his designation in a 1999 Time magazine cover story) explain the fine mess he has gotten us into? He has two strings to his bow – anti-communism and appeals to “human nature”. Both are among the last resorts of scoundrels, today as for the last 100 years.

To take the second first, Greenspan writes: “The oft-assailed greed and avarice associated with capitalism are in fact characteristics of human nature, not of market capitalism, and affect all economic regimes.”

This is an argument which leads almost nowhere. “Human nature” is, for a start, a good deal more plastic than Greenspan allows. It did not emerge unchanging as from hewn rock, and has gone through considerable modification through several millennia of developing forms of social organisation of increasing complexity. But if we allow the concept for a moment it can still hardly be prayed in aid of full-on free-market Greenspanism.

For a start, it could be asserted that “aggression” is a basic human characteristic, at least as much as “greed” is. Yet it could hardly be argued that society should pass no laws to set limits on aggression (individual, group of national), but should simply shrug and leave the aggressive to get on aggressing as mandated by human nature. Instead, society generally recognises it as a bad(ish) thing and sets out to at least curb it. Greenspan’s world, however, celebrates greed – and it is not to harsh on aggression either, particularly if it opens doors worldwide for the greedy

It is also noticeable that not only are some people a good deal more greedy than others, without being endowed with any more “human nature” than the rest, but also that humans appear to be naturally inclined to co-operation in their productive lives.

This tendency towards co-operation, without which little of anything would be produced at all, is contradicted by greed, or the private appropriation of the fruits of common labour, if we can descend from “human nature” to human practice. The fruit-appropriation side of things was of course going gang-busters in the Greenspan era with a massive transfer of wealth to the global elite.

In acknowledgement of this, Greenspan makes a curious point. “The legitimate concern of increasing inequality of incomes reflects globalisation and innovation, not capitalism.” Whatever way you turn this particular argument, it never ends the right way up.

First, capitalism has always been in its own nature a global system, designed to sweep aside any socially-erected barrier to the accumulation of capital including those erected by its own creations of an earlier time, like the nation-state. Marx and Engels pointed that out in the Communist Manifesto. From that perspective, the post-1991 era is merely the fulfilment of what Americans might call its manifest destiny.

Moreover, capitalist globalisation is a fact that Greenspan himself has celebrated more than once. Indeed, in the same article, before he gets bogged down in all the human nature stuff, he rejoices in the fact that “in 2005 more than 800 million members of the world’s labour force were engaged in export-oriented and therefore competitive markets, an increase of 500 million since the fall of the [ Berlin ] Wall.” More wage-labour, more surplus-value…

So what was the crowning glory of capitalism a la Greenspan had become, a few hundred words later, not just the source of the problem of inequality, but in fact nothing to do with capitalism at all! This is patently absurd, which could be realised either by observing that capitalism generated enormous inequality when the main scope of a given capitalist economy was circumscribed within national boundaries, or by asking the question as to what is driving all the “globalisation and innovation” if it is not capital?

But this cuts to the heart of the Greenspan world-view. Capitalism is, in theory, perfect, so any problems it displays need to be sourced elsewhere. Capitalist practice, he acknowledges, “needs adjustment” before lamenting that any “improvements” to the capitalist model (my emphasis – AM) will likely make things worse.

One problem which, he allows, causes him “distress” has been “the extent to which bankers, previously pillars of capitalist prudence, had allowed their equity buffers to dwindle dangerously as the financial crisis approached.” So “human nature”, which had previously blessed bankers with “prudence”, underwent a lightning change in the very years when Greenspan himself was the main mediator between our natural selves and the market, and sent all the hitherto-thrifty executives out on the razzle instead.

But even if human nature did turn out to be such a fickle mistress, flitting between prudence and greed at a whim, it could not account for the crash because, to deconstruct Greenspan further, he laments above the absence of prudence in preparing as “the financial crisis approached”. So the crisis itself did not emerge from human nature in either its benign or malign variations, but externally. The imprudent bankers are as the foolish virgins without enough oil in their wicks, but they are not themselves the reason for the delay in the bridal party arriving.

From whence then did the crisis spring then? On this point, the oracle is still silent. He is probably wondering what on earth the late Ms Rand would have made of it all. So no wonder the reflexive reversion to anti-communism, or anti-socialism of any sort to be more exact, since the Fabians get it in the neck along with the German Democratic Republic.

This is a larger subject, but it must be pointed out that millions of humans found both socialism in the east and social-democracy in western Europe perfectly “natural” even unto the point of, on all polling evidence, mourning their absence from the menu of permitted political choices in the world that Greenspan has wrought.

Their return must be the spectre haunting the former chief “master of the universe” as he slides towards dotage. It must be for galling for him to even read a series in the FT on “capitalism in crisis” -his capitalism - let alone be asked to contribute to it. But he would have got well paid for his piece – natural avarice you see, more of a consolation for him than the rest of us.

Andrew Murray is a regular contributor to 21stcenturymanifesto