Former chairman of the Federal Reserve Alan Greenspan spoke at the National Press Club Wednesday night, presenting a placid summary of the findings from his new book The Map and the Territory. The gist of Greenspan’s remarks was that in economics (and human nature) you can never discount human irrationality—particularly fear—and that in politics people aren’t playing nice like they used to.
Greenspan, who is 87 years old (and has always looked it), ambled into a half-filled ballroom and sat down for an interview with Angela Greiling Keane, president of the NPC, who posed mostly softball questions. Oftentimes Greenspan would insist that the answer is within the book. But when he wasn’t redirecting attention, Greenspan spun a tale that pointed to human foibles as the source of our economic woes, rather than central banking.
Not once did the former Fed chairman address the potentially negative ramifications of central banking. Greenspan seems to view the world of economics primarily through the lens of a Fed agent, referring to his perspective multiple times as that of a central banker rather than a private economist, so it should be no surprise that he places the blame for economic problems on behavior and emotions rather than on market manipulation.
In talking about the crisis of 2008, Greenspan acknowledged the impact that federal regulations and schemes had in spurring economic collapse, but he preferred to dwell on less quantifiable measures such as euphoria. “The old conceptions were that in spite of irrationality, all economic growth must reflect actions that are rational,” said Greenspan. Bubbles are a function of human nature, he reflected, and they happen all the time, but “most bubbles, when they break, do not have significant economic impact.” The problem with the 2008 housing/financial bubble was that markets actually shut down. They didn’t do that during the Depression.
He praised government for helping—in his opinion—restore economic activity and called for more and higher capital requirements to help abate crises in the future. TARP in particular was not the political disaster most made it out to be, Greenspan suggested. A ratio that Greenspan regularly employs to gauge the state of the economy is illiquid fixed asset investment to liquid cash flow, which gauges uncertainty. His analysis indicates that this ratio is currently at an all-time low.
When discussing politics, Greenspan pined for the good old days. Social gatherings in Washington used to be 50 percent Democrat, 50 percent Republican, he recollected, but now they’re usually 98 percent weighted in one direction or the other. He shared an anecdote about how Tip O’Neill would spend an entire day at the Capitol lambasting Gerald Ford, only to show up at the White House by 6 pm for drinks with the president.
People used to talk to each other, Greenspan said, and that speaks to the core values of the nation: In his opinion, what’s unique about the United States is that there is one set of political principles that are beyond question—the Bill of Rights—and the rest is on the table for discussion and compromise.
It was intriguing to hear Greenspan talk about markets and glaze over the role that central banking played. Even as he talked about how economic models failed and how he made the fatal assumption of underestimating human irrationality, he did nothing to refute the Alan Greenspan of 40 years ago, who, in 1966, wrote an article about the gold standard for Ayn Rand’s publication The Objectivist, and denounced central banking and the Fed as sources of economic disruption and wealth appropriation. “Deficit spending is simply a scheme for the confiscation of wealth,” said the old Alan Greenspan. What does the new and wiser Alan Greenspan have to say about free markets and the issue of central banking? “I talk about that in the book.” Principles seem to be of less interest to Greenspan these days—“Ideology is a useless abstraction.”
He did give a warning to incoming Fed Chairwoman Janet Yellen. “Yellen is going to have a tough set of problems going forward.”