Greenspan and the Free Market
A Story of Flawed Ideologies
Greenspan himself admitted that his faith in free markets was "flawed" during a House Financial Services Committee meeting on October 24, 2008. "Because I've been going for 40 years or more with very considerable evidence that it was working exceptionally well." This was the reason he based his policies on free markets: they simply had worked well for him for all of his professional life. His faith, his belief, and his trust in the markets developed through experience and a slow understanding that his sytem was working. Markets were behaving with solid regularity and the so-called "Great Moderation" was underway. People were making a considerable amount of money, and the economy was looking up. The stock market crash of the early 2000's was a thing of the past and no one thought twice as the DOW continued to push past 12,000; 13,000; and finally hit 14,000 in October of 2007. Then, things went terribly wrong.
Greenspan's faith was in his words "misguided." He failed to see many of the problems we have today because he didn't look for the differing opinions, beliefs, and ideas that could have prevented much of what has happened. He was undoubtadly an extremely smart person, but he lacked the intellectual and political humility to back down and question his on belief systems. Ayn Rand, and specifically her ideas on objectivism (see www.aynrand.org/site/PageServer?pagename=objectivism_intro), still held firm in his mind. He respected people's, and most prominantly the market's, freedoms and did little to oppose the status quo that was working so well. Regulation was a messy business; Greenspan feared he would be seen as an enemy to the markets and wealth that had undergone so much expansion during his leadership at the Federal Reserve. He did not want to do the hard things that a central banker must do, he did not want to take away the cheap, easy credit that preceeded the largest housing bubble in world history and the record high of world stock markets. Greenspan was, as Arthur Levitt said, "set in his ways." He did not want to be bothered with the differing opinions of many of the world's economists, and this was a fatal miscalculation.
Greenspan is indoubtadly an incredibly smart individual, but if there is one thing I think we can take away from his story it is this: look for opinions and facts that differentiate from your own and be prepared to challenge your own faith and beliefs. Faith itself is includes not only beliefs but also reason. If we ignore the facts that lead to better reasoning, we are being irresponsible, and are tending towards blind faith. Faith should be a lifelong process, and systems that have worked for fourty years or more should always be constantly evaluated. Faith should be continually evolving and strong faith should be willing to stand up for itself, but also reasonable and knowledgeable. That is where Greenspan went wrong.