It's been over a year, and we still have a dark OTC derivatives market and essentially no meaningful regulatory reform. The man who claims to be pushing for it is Larry Summers, the hatchet man for Rubin and Greenspan's deregulatory heyday in the 90's. We on the left tend to look at this shortcoming through an economic lens, and, I submit, get nowhere in the process. Those on the right have a different and, as the scoreboard clearly shows, much more effective approach to policy advocacy. How so? Follow me over the jump.
The Unknown Ideal
"Technology has subsumed the idea of the sublime because it, whether to a greater extent or an equal extent than nature, is terrifying in the limitless unknowability of its potential" (Gilbert-Rolfe 128).
On October 23, 2008, one of the most enduring figures of laissez faire capitalism, Alan Greenspan, was called to testify before the House Committee on Oversight and Government Reform. Greenspan, almost universally known as "the maestro" because of his storied uncanny ability to predict economic outcomes, was basically called to tell the rest of us, including very smart Congresspersons and their staffs, just what the hell was going on. His answer, a shock to many, led John Stewart of The Daily Show to muse "It sounds like what you’re saying is, ‘you know that whole capitalism thing? Doesn’t really work.’"
Why should the words of one very old man matter? For starters, he was the chairman of the Federal Reserve under four presidents, iconic in stature to say the least, but also more concretely the single largest actor in the shaping of our current economic policy, quite arguably, and almost always in favor of free trade. More to the point, people have always sat up and taken notice of what Greenspan has to say, leading him to strongly avoid absolutisms and consistently veil his intent. There’s a case to be made that this only increases the gravity of his words.
Take December 5, 1996, for example. At a black tie dinner that was televised on CSPAN, fourteen pages into a very long speech, Greenspan gently cautioned against the over-speculation of investors (in the time of the "dot-com boom") by posing a rhetorical question: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" Within moments of his speech’s end, world markets fell roughly 5%, and the next morning the U.S. stock market opened down by 2% (Shiller, Internet). The words "irrational exuberance" became Greenspan’s most famous, forever a symbol of the sublime power and influence of "The Maestro."
We’ll get to exactly what Greenspan said to the House Committee in a
moment, because I feel it is important to think critically about the man and his choice of words, to strive to decode his mannerisms and his mystique, to the extent we can, in order to fully digest the historical implications of that admission. It was not an admission of guilt, by any means, nor is this paper about assigning blame to any particular party or individual, involved as they may be. More a measure of the cultural implications of the Greenspan phenomenon, what I will attempt to argue in this paper is that with Greenspan’s dramatic change of message comes the dawning of a new era, relating strongly to Frederick Jackson Turner’s thesis at the closing of the American frontier in 1893.
It shouldn’t come as any shock, then, that the economic importance of culture was never lost on Greenspan. In the final chapter of his latest book, he writes that for any given society, "the tradeoff between material wealth and lack of stress appears to rest on its history and the culture it has spawned" (271-2). He goes on to add that "Some aspects of a nation’s culture end up visibly effecting the GDP." To Greenspan, this aspect of capitalism was once one of its greatest strengths. The country with the collective will to work hard would win, so to speak, but so would the human race, at least in terms of material well-being, and ideally in all-around quality of life. However, like the Greenspan of yesteryears, many economists to date fail to see the forest for the trees, and thus miss many of the negative implications of a nation economically destined by its culture, implications which may only be examined through an interdisciplinary lens.
Now, as a caveat, this lens ought not serve as a mere magnifying glass, sweeping broadly across vast swaths of the Greenspan canon and yet magnifying only slightly; to the contrary, the aim of this exercise need be to diagnose the Greenspan dilemma by zeroing in on only the most significant statements and associations for our purposes. This is mainly because the true Maestro leaves only the faintest trail amidst a sea of rhetoric, as is evidenced by the dearth of scholarly theses regarding the important matter at hand.
Forging delicately ahead then, in this manner, we shall find ample proof that the legendary mystique that allowed Mr. Greenspan such relatively unchecked power for so many years was itself a cultural creation that relates directly to both a romantic deification of unspoiled symbols of the powerful or sublime, in this case, free, untrammeled markets and their champions, and the belief that free, wild, natural "frontiers" are the greatest source of America’s distinctly volitional national character.
Greenspan, think of him as the modern day bizarro-cowboy, was influential (a pretty good measure of success) largely because of his shrewd ability to capitalize upon the subconscious nostalgia for a new frontier in America, at a time when the old one was disappearing to the cause of progress. First, as to Greenspan’s recent words before the house oversight committee, the always-cryptic quality that marks the maestro’s public comments can hardly mask the meaning that is implicit therein, nor the dramatic change in philosophy they represent:
``Yes, I found a flaw," Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well."... ``We cannot expect perfection in any area where forecasting is required,'' he said. ``We have to do our best but not expect infallibility or omniscience.''... ``If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,'' Greenspan said. ``Forecasting never gets to the point where it is 100 percent accurate.'' (Bloomberg)
What seems to be the flaw itself (for his public remarks, remember, are always a bit foggy) is as follows, also from his testimony to the House Committee: "I Made a mistake in presuming that the self interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms" (Bloomberg). This alone was more wrong than maestro Greenspan had ever been willing to publicly admit. The real policy change, however, came in the following form: "As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue. This will offset in part market deficiencies stemming from the failures of counterparty surveillance" (Bloomberg). In other words, Mr. Greenspan no longer thinks that Banks can be allowed to be the sole actors on behalf of their shareholders.
This shift no doubt rocked the financial world, not because it is a particularly radical view given the current crisis, but because it is such a dramatic change in tone for the notoriously tight-lipped Greenspan himself. Given the turbulent nature of the current crisis, however, it would be hard to accurately assess just how much of an effect this statement had, but for the purposes of this paper, it is safe to assume, a significant effect was felt. So why, given the "once-in-a-century credit tsunami" (Bloomberg) that we are currently facing, should it surprise everyone all that much that even the Maestro himself has proposed putting laissez faire on hold for the moment? Again, the answer lies not in the realm of economics but that of culture.
To be more precise, the admission before the House Committee on Oversight and Government Reform could be said to mark the closing of the second chapter of American history. This is only made more so if one agrees with Frederick Jackson Turner’s famous thesis that the closing of the frontier, as declared by the U.S. census bureau in 1890, marked "the closing of a great historic movement" (199). As Turner put it, "All peoples show development; the germ theory of politics has been sufficiently emphasized" (199). Therefore, with no further land to feed a body politic hungry for, as well as dependent upon, a perpetual state of robust growth, free markets were the only other logical turf on which America could continue expanding, and thus preserve some of its rugged, adventurous, individualistic frontier character.
And so a new kind of cowboy, an important new historic movement, and a new chapter of the great American story were all catalyzed, perhaps as much a direct result of Turner’s wildly popular, prophetic essay amongst romantics such as Theodore Roosevelt, than of the actual closing of the frontier (though such debates are thoroughly fleshed out elsewhere and are not important for the purposes of this paper). In terms of actual length of time, both chapters were roughly the same: 100 years for Turner’s west (from 1790-1890) to cease expanding, and another 118 before the recent catastrophic end to the expansion of market-centric idealism and policy making. Greenspan, along with Milton Friedman and the Chicago school of "economic individualists" (this author’s term) were the torch-bearers of this most recent age, raising important questions about the ideology and the powerful role of public servants as personas in this next chapter of American history, beginning as we speak. Barack Obama fits some of the same molds as Greenspan in terms of rhetorical power and sublime public stature. Will he be able to enact policies that are markedly different from Greenspan’s while still maintaining a Maestro-like, mystique-soaked public persona? Many experts have serious doubts that it can be done, despite a clear electoral mandate from the country and a working majority in both houses of congress. So what is the fundamental flaw with this country’s insatiable appetite for expansion?
In the essay "The Trouble With Wilderness", William Cronon makes the strong case that the modern American concept of wilderness areas as sacred is a contrived, self destructive diversion stemming from both our Romanticist tradition of a religious respect for the sublime and loathing for the ordinary, as well as our formative experience of rapidly modernizing the frontier and its dramatic effect on the character of our institutions and overall national identity. After all, Cronon argues, the Native Americans inhabited America long before we did, and yet somehow this inhabitance failed to disqualify U.S. natural spaces as wilderness, due purely to aesthetic reasons (cite). Furthermore, by spending political capital preserving areas that are more aesthetically pleasing than others, we in turn neglect the challenges of sustainability that ought to be dominating the discourse about nature.
For example, we expend disproportionate time and energy preserving the more awe-inspiring areas of nature, often at the expense of the more functionally valuable, such as wetlands. According to Cronon, when we set humanity and naturalness at opposite poles, measuring civilization according to its appreciation of wilderness aesthetics, "We thereby leave ourselves little hope of discovering what an ethical, sustainable, honorable human place in nature might actually look like" (97). There are many obvious parallels between Cronon’s insights into the American cultural phenomenon of wilderness preservation and free market preservation, and we shall trace them presently. Basically, we should not be spending political capital preserving the freedom of markets above all else simply because of their aesthetic appeal. Markets, like ecosystems, have a true functioning purpose in societies beyond the simple entertainment of an elite few. They are a powerful means of moving goods and services to needy areas, for example, thus overcoming the collective action problem. The problem, Cronon argues, is not simply in admiring sublime things; it is idealism and fundamentalism that blinds us. This is important to keep in mind in studying Greenspan.
For the connection to be more than symbolic, however, and one worthy of consideration for future policy-making, two factors must hold true: first, that like the American wilderness, there really are no completely free markets in the world economic system. And second, that Greenspan himself would never admit it, instead opting to build and perpetuate a seemingly impenetrable wall of philosophic logic to prove capitalism to be, as Ayn Rand often put it, "the unknown ideal," because we simply have yet to realize it in its untarnished form (Varsava 85). While no definitive answer yet exists to either of these questions, we need look no further than Naomi Klein’s essay "Greenspan and the Myth of the True Believer" to see that questions such as these are far from the fringe. Klein, who in the past has debated Greenspan on DemocracyNow.org, charges that the essential takeaway point of Greenspan’s tell all book "The Age Of Turbulence" was that Greenspan himself admitted getting into policy making simply because "he thought he could advance his radical ideology more effectively ‘as an insider, rather than as a critical pamphleteer’ on the margins" (Klein). She goes on to detail the debate over the apparent hypocrisy that is Greenspan’s legacy, "of a man preaching laissez-faire who repeatedly intervened in the market to save the wealthiest players" (Klein). According to Ms. Klein, those contradictions only actually matter to the extent that Greenspan is a true believer in his own ideology. Were he simply a kind of romantic idiot savant who just happened to be good at math and, somehow, wildly capable of shaping policy, it would be much less of a concern to policy makers, because there would be neither an intent nor reproducible method to his proverbial madness.
As it turns out, even in 1997, long before the Congressional confession of sorts, and even while commonly professing to being "stunned" that Greenspan had refused (to that date) to shoulder any of the blame for the financial crisis that has been unfolding in fits and starts for the last decade at least, she still was not herself convinced that Greenspan was a believer of his own rhetoric. If Greenspan’s act was a ruse, it must have been one hell of a ruse; Klein, nevertheless, isn’t buying it. So, we thus have growing picture of Greenspan, an avid reader of the cultural tea leaves who is brazenly unrepentant both for his hand in the crisis as well as his own failures to live up to his own ideology. The former suggests a sort of cunning, beguiling strategy at play; the latter suggests a crack in the visage of the very possibility of truly free markets ever existing beyond a simple pipedream. In playing out the way it has on the stage of public opinion, the Greenspan mythology flings gaping wide the door of possibility for a case to be made that America’s romantic idealism of nature and the sublime, left with not much of an object for its affections, was instead channeled willfully by Greenspan towards the sublime vision of unfettered free markets and the limitless possibilities supposedly inherent therein.
To significantly bolster the case that there was a directness and an architecture to this strategy, however we need to explore Ayn Rand, close friend and mentor of Greenspan’s, who convinced him, as well as her many other disciples in New York at circa 1970, that capitalism was "moral" as well as efficient (Klein). That Greenspan was a close disciple and protégé of Rand’s is common knowledge. What many people do not realize is that Rand considered herself to be a Romanticist of sorts (the one exception being her atheism). She wrote two major essays, "Romantic Manifesto" and "What is Romanticism" in which she argues that art (namely literature, her art form of choice) inherently relates to values, and that the romantic artist will have value-positive work, while the naturalist artist’s work will tend to be value-negative (Torres & Kahmi 31). The reason for this difference was in the philosophical beliefs of the two movements. As Rand saw it, Romanticism was mainly interested with man’s volition, and "the concretized vision of life he is to achieve" (Rand 23). Therefore, whether it was the vision of pristine wilderness or the vision of perfectly well-oiled, productive, and prosperous free markets, what mattered most was whether the object of one’s consideration had a tendency to instill the values that Rand held dear, including rugged self reliance, individualism, and personal freedom. So it’s clear that to Rand there would not have been a whole lot of daylight between the two concepts (wilderness and free-markets) in terms of what actually matters, and this explains how a romantic writer could spend most of her career as a novelist writing about things such as capitalism and the free market that on their surface lack the kind of sublimity that one finds in the Grand Canyon. It was her life’s work, and Greenspan’s following her, to make those things sublime for the American public, and given the wild success of her books as well Greenspan’s wildly successful career in its own right, it’s safe to say she succeeded considerably in that quest.
Interestingly, it seems that Rand’s own descriptions of Romanticism have been found riddled with holes, as Louis Torres and Michelle Marder Kamhi point out. While her main statement, that the emphasis on the artist’s volition is a Romantic premise, seems logical enough, the accompanying discussion of how that volition manifests itself in literary romantic art, namely by the artist’s choice to depict "a beautiful human rather than an ugly one," or, by extension, a beautiful sublime subject rather than an ugly sublime subject, is not correct (33). Torres and Kamhi raise the example of Diego Velazquez, the Spanish painter who portrayed the dwarfs of the Spanish court, instilling in them his volition such as confidence and pride, while still retaining a realist’s honesty about the outer appearance of his subjects (33). The reason for mentioning this careless error on Rand’s part is to remind one of the fact that Rand was a Philosopher first, artist second, and Romanticism, for her, was not a belief so much as a means to an end. In this sense she was just like Greenspan, and this philosopher-first, policy-maker-second mentality would certainly explain how his own flaws such as the one he finally admitted to in the October 23 hearing, could go unnoticed for so long, by him or anyone else. He, like Rand, had a pass due to the power of their philosophy. It is more than likely, however, that both Greenspan and his mentor were blinded by their own ideology, albeit an ideology that portended to be based on sound logic, as Rand proudly declares in one of her letter correspondences with a fan after the release of The Fountainhead: "If you must classify me in relation to the ancient philosophers, count me in with Aristotle, the father of Logic" (Berliner 222).
Were there such a thing as a Romantic policy maker, Greenspan would definitely fit the pedigree. As with Rand, he would appear also to have used Romanticism as a means to an end, in order to be a more productive legislator. There is no direct evidence from Greenspan’s personal life, however, of him ever having behaved as much of a rugged individualist. In fact, his strict adherence to all of Rand’s theories, well documented and beyond dispute, would tend to suggest the opposite of individualism, and has probably thrown most scholars off the Romanticist scent. Given Greenspan’s strictly non-religious, empirical, and always consistent (on the ever-placid surface) worldview, however, it would only take the slightest real evidence of Romanticism (perhaps the antithesis to empiricism, Greenspan’s guise of choice) to make the case. The marriage of these two seemingly opposite worldviews, as well as the most compelling direct evidence of his true designs, is to be found in the final chapter of his latest book:
[A]ssisted by the wave of deregulations since the mid- 1970’s, today’s U.S. economy remains the most competitive large economy in the world, and American culture still exhibits much of the risk taking and taste for adventure of the country’s earlier years. More than a century after Frederick Jackson Turner declared in 1893 that the frontier was closed, Americans reveled in stories of the exploits of free spirited cowboys who, following the civil war, manned the cattle drives up the Chisholm Trail from Texas to the rail depots of Kansas. (279)
This statement sums up Greenspan’s Philosophy, policy-making approach, and political strategy in one neat package. What’s more, it worked for years, all the years, in fact, that he was chairmen of the Federal Reserve. But was it right?
Cronon wrote that "[i]dealizing a distant wilderness too often means not idealizing the environment in which we live, the landscape that for better or worse we call home" (103). Looking at what happened to the economic environment we live in over the last chapter of American history, since Jackson’s thesis, it is clear that on at least two occasions we have seen rampant deregulation lead to a collapsed financial system resulting in major social ills. The current crisis has yet to play out, and yet the parallels to 1933 are undeniable. As a second wave of foreclosures sweeps across the nation due to people in safe mortgages with otherwise sound finances losing their jobs in the melee (cite), we are looking at taking a major step back from the free-market drive that Greenspan has been herding so deftly for so long, in the form a sweeping regime of derivatives regulation and other forms of government intervention. Americans might look at this as a step towards idealizing once again the real economic environment, plain, drab, and unadventurous, but existent. Or America might simply turn to the Obama administration as the new cowboys in town, albeit with a bit more consternation. Be that so, it is unlikely that much more than a baby-step back from the brink will take place. But with Obama’s penchant for listening to experts and a keen intellectual curiosity, it seems likely that the third chapter of American history will finally be about expansion into the technological realm (if development is to truly remain the germ theory, as Turner said), and perhaps, after two failed attempts, we will lose some of our uniquely American appetite to develop so rapidly. One thing which is completely clear through all of this is that free markets must never again hold the sublime perch that they lost when Greenspan finally sighed, shrugged, and let the dream of laissez-faire, that "unknown ideal," pass by. The frontier thesis, in retrospect, was a warning, a cultural wake-up call, to the America of the 1800’s, that it must not live in the glorious frontier past, but instead keep forging a new identity based on the ever exciting, ever volitional present, not how we imagine it to be, some sublime thing no one can attain, but rather, how it actually is. In demystifying the myth of Greenspan, there is a map of how we might examine our politicians and our policies more dispassionately, more scientifically, almost surgically, as we forge ahead toward an ever-more delicate future.
Works Cited
Berliner, Michael S., ed. Letters of Ayn Rand. New York: Penguin Group, 1995.
Cronon, William. "The Trouble With Wilderness." The Best American Essays, 1996. Ed. Geoffrey C. Ward. Boston: Houghton Mifflin Company, 1996. 83-109.
Gilbert-Rolfe, Jeremy. Beauty and the Contemporary Sublime. New York: Allworth, 2000.
Greenspan, Alan. The Age of Turbulence: Adventures in a New World. New York: Penguin Group, 2007.
Kamhi, Michelle Marder, and Torres, Louis. What Art Is: The Esthetic Theory of Ayn Rand. Peru: Carus, 2000
Klein, Naomi. "Greenspan and the Myth of the True Believer." Naomi Klein. 27 Sept. 2007 <http://www.naomiklein.org/articles/2007/09/greenspan-and-myth-true-believer>.
Lanman, Scott, and Matthews, Steve. "Greenspan Concedes to `Flaw' in His Market Ideology." Bloomberg. 23 Oct. 2007
The Daily Show. Comedy Central. New York. 23 Oct. 2008.
Shiller, Robert J. Definition of Irrational Exuberance. 2005. <http://www.irrationalexuberance.com/index.htm>.
Turner, Frederick Jackson. The Significance of the Frontier in American History. March of America Facsimile Series Ser. 100. Ann Arbor: University Microfilms, Inc., 1966.
Varsava, Jerry A. The Saturated Self: Don Delillo on the Problem of Rogue Capitalism. Contemporary Literature, Vol. 46, No. 1 (Spring, 2005), pp.78-107.