Alan Greenspan and the Death of Ayn Rand
April 8, 2010 16 Comments
US Economist Alan Greenspan has been giving his testimony before the Financial Crisis Inquiry Commission, criticised for failing to implement rules that would have curbed an overstretched banking system.
As the Telegraph reported:
In one of the most heated moments of his testimony, Brooksley Born, who chaired the Commodity Futures Trading Commission for three years from 1996, blasted: “The Fed utterly failed to prevent the financial crisis. Failed to prevent the housing bubble, failed to prevent the predatory lending scandal.”
Greenspan, who chaired America’s central bank from 1987-2006, said that he hadn’t “regulate[d] sub-prime mortgages because, by 2005, more than half of such home loans were being originated by institutions outside of the central bank’s control.”
For a man otherwise known for his strong libertarian, anti-governmental regulation and pro-laissez-faire views, this was a shock, that his diagnosis for the problem was that the origin of home loans were too far scattered about to be properly managed and controlled, thus the uncontrollable housing bubble that ended in a global economic catastrophe.
William Dudley, the President of the Federal Reserve Bank New York noted that central banks should be putting more emphasis on regulation, just hours before Greenspan went to admit misjudging the severity of the housing bubble.
This is a rather indicative appeal to the one that came about in 2008 when Greenspan, though refusing to accept blame, admitted ‘that his belief in deregulation had been shaken.‘
This is made all the more significant by the fact that Greenspan has also been considered one of the most well-known and highly regarded champions of the theories of Ayn Rand – the Russian-American novelist and philosopher whose work aims to promote ethical egotism (selfishness as a principle) in reaction to altruism under the banner of Objectivism; a response to statist political trends of her time – someone who felt that capitalism as an ideal should have no interruptions by the state whatsoever.
Greenspan was an associate of Rand’s during the early fifties all the way until 1982 when Rand died. They were so close in fact that Rand stood beside Greenspan while he was being sworn-in as Chair of the Council of Economic Advisors in 1974.
He by no means downplays this now. In a recent ABC interview, Greenspan defended Rand and made note that the financial crisis did not ‘indict her’. He said of her theory, and the free market itself, that ‘there is no alternative if you want to have economic growth, higher standards of living, in a democratic society, to have competitive markets.’
His answer serves as a short-sighted defence of capitalism and trade free from tariffs, but it is not a defence of Rand’s theory of capitalism; an economic theory that, for Rand, represents our natural selfish urges and the belief that “Man’s … own happiness [is] the moral purpose of his life.“
But really the crash that Greenspan was instrumental in producing (on a list of 25 people to blame for the financial crisis, Time Magazine placed him at # 3) is proof that markets need regulation so as they don’t spin out of control. By his own admission (see above) this was why it was impossible to oversee sub-prime mortgages – because they were so far removed from a central control.
Furthermore, it is not good enough to say that capitalism is the best “alternative” for “higher standards of living” in a “democratic society” – Rand didn’t say that capitalism was the better of a bad lot of systems (like Churchill did) but she insisted this was best because human nature rendered it so.
In short, the crash – and others before it – does indict Rand; Greenspan should be informed enough now to acknowledge this.
To say the markets do not need regulation all the time is like saying a child doesn’t need supervision all the time because a child does not always hurt itself – if you’re not watching, you won’t be able see the problem before it comes to fruition, and if you are watching, you might be able to stop an accident from occurring.