Saturday, October 25, 2008
Greenspan Surrenders in the Battle Over Narrative
I hope this post doesn't disillusion some of our younger readers, but we don't hold back here at Free Advice: Ever since the financial crisis became obvious to all, many other free marketeers and I have been consciously trying to make sure government gets the blame for this, not "laissez-faire capitalism." Obviously we are doing this because we think it is true, but I do want to acknowledge the strategic aspect of it. In particular, I have been trying to drive home the Austrian business cycle theory now that there is a brief window in which many academics, as well as a bunch of nerdy investors, would be far more receptive than ever before.
But alas, with Greenspan's recent testimony, we lost. He conceded defeat. It doesn't matter how many impassioned pleas or delectable analogies I write. The single person on earth who bears the most responsibility for the housing bubble is taking responsibility--by saying it was his faulty faith in deregulated markets. Here's the smoking gun:
Checkmate. Weisberg 1, Liberty 0.
Sure, we will keep writing, just for posterity. People 50 years from now can read our reports to understand precise details that would otherwise be forgotten. But let's not kid ourselves that we can still spin the narrative to exonerate markets.
Nope, this is about as damning a concession as if Don Rumsfeld testified, "Yeah, I am quite frankly shocked at how badly things turned out in Iraq. I mean, the use of overwhelming firepower worked so well in World War II and the first Gulf War. I have to rethink my views on diplomacy."
Can you imagine Bill Kristol trying to spin that? So now you feel my pain.*
Oh, at this point it probably goes without saying that Tyler Cowen disagrees with me; he doesn't think Greenspan conceded much at all.
* Don't get mixed up, folks. I was against the Iraq invasion. And so I'm saying, it would be hilarious to me to watch an intellectual try to justify militarism in light of the chief architect admitting it didn't work. So by the same token, how can I possibly be taken seriously by leftists who distrust the market, after its leading "proponent" and architect of the housing bubble admitted that the Invisible Hand doesn't work after all?
But alas, with Greenspan's recent testimony, we lost. He conceded defeat. It doesn't matter how many impassioned pleas or delectable analogies I write. The single person on earth who bears the most responsibility for the housing bubble is taking responsibility--by saying it was his faulty faith in deregulated markets. Here's the smoking gun:
Waxman: Dr. Greenspan, I'm going to interrupt you. The question I have for you is... You had an ideology ... You had the authority to prevent the lending practices that led to the subprime mortgage crisis, you were advised to do so by many others, and now our whole economy is paying the price. Do you feel that your ideology pushed you to make decisions that you wished you had not made.
Greenspan: Well, remember what an ideology is. It's a conceptual framwork for the way people deal with reality. Everyone has one. To exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is that I found a flaw - I don't know how significant or permanent it is - but I've been very distressed by that fact. But if I may, can I just answer the previous question?
Waxman: You found a flaw in the reality...
Greenspan: I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works.
Waxman: In other words you found that your view of the world, your ideology, was not right. It was not working.
Greenspan: That's precisely the reason I was shocked because I was going for forty years or more with very considerable evidence that it was working exceptionally well.
Checkmate. Weisberg 1, Liberty 0.
Sure, we will keep writing, just for posterity. People 50 years from now can read our reports to understand precise details that would otherwise be forgotten. But let's not kid ourselves that we can still spin the narrative to exonerate markets.
Nope, this is about as damning a concession as if Don Rumsfeld testified, "Yeah, I am quite frankly shocked at how badly things turned out in Iraq. I mean, the use of overwhelming firepower worked so well in World War II and the first Gulf War. I have to rethink my views on diplomacy."
Can you imagine Bill Kristol trying to spin that? So now you feel my pain.*
Oh, at this point it probably goes without saying that Tyler Cowen disagrees with me; he doesn't think Greenspan conceded much at all.
* Don't get mixed up, folks. I was against the Iraq invasion. And so I'm saying, it would be hilarious to me to watch an intellectual try to justify militarism in light of the chief architect admitting it didn't work. So by the same token, how can I possibly be taken seriously by leftists who distrust the market, after its leading "proponent" and architect of the housing bubble admitted that the Invisible Hand doesn't work after all?
Comments:
Mr Greenspan passes the blame on the market. Oh well. If I was the most notorious central planner in history, I would pass the blame on too.
Bob,
That is why these guys have to be attacked on their thnkng at every opportunity. I think we have to call then out all the time and everywhere. Thus, my recent attack on Mankiw who is generally OK but has no business cycle theory:
http://tinyurl.com/6z3egk
BTW: If you read Greenspan's autobiography there is no business cycle theory of any type of in the book. The man ran the Fed and he never even had a business cycle theory!
Further, the battle is not over, these Business Cycle deniers will continue to deny, and we must call them on it every time.
That is why these guys have to be attacked on their thnkng at every opportunity. I think we have to call then out all the time and everywhere. Thus, my recent attack on Mankiw who is generally OK but has no business cycle theory:
http://tinyurl.com/6z3egk
BTW: If you read Greenspan's autobiography there is no business cycle theory of any type of in the book. The man ran the Fed and he never even had a business cycle theory!
Further, the battle is not over, these Business Cycle deniers will continue to deny, and we must call them on it every time.
RW,
Yeah, I saw your (cool) critique of Mankiw, and I didn't realize Greenspan had no business cycle theory.
I'm not giving up, I'm just recognizing that there is no way the average person will think this episode proved that gov't intervention doesn't work.
Yeah, I saw your (cool) critique of Mankiw, and I didn't realize Greenspan had no business cycle theory.
I'm not giving up, I'm just recognizing that there is no way the average person will think this episode proved that gov't intervention doesn't work.
Bob,
Re: Greenspan. It's amazing not one word about a business cycle in his book---no reference at all. And the man was Fed chairman.
If he understood ABCT, he could have blamed this current downturn on Bernanke, for slowing money growth this summer, instead of saying there was a flaw in his thinking! LOL
Re: Greenspan. It's amazing not one word about a business cycle in his book---no reference at all. And the man was Fed chairman.
If he understood ABCT, he could have blamed this current downturn on Bernanke, for slowing money growth this summer, instead of saying there was a flaw in his thinking! LOL
The man cashed in any principles he had to get the job. No surprise he didn't suddenly remember them now. He had a choice, admit to a "small" error or admit his entire career was an error. He, like Bush, is in legacy protection mode and will do anything to avoid being remembered as Hoover (however incorrectly) is.
Jim O'Connor
The Colony, Texas
Jim O'Connor
The Colony, Texas
# posted by 
: October 26, 2008 at 5:48 PM
: October 26, 2008 at 5:48 PM
I don't get it. Of course Greenspan is going to deny that his Fed policy caused the disaster -- which his critics have been warning us about for years. So what?
Lester,
He could have said, "It was the fault of Barney Frank and ACORN." He could have said, "There were many causes, and I'm still studying it."
Since he was willing to admit he was at fault, why could have said, "In retrospect I may have kept rates too low for too long, but you must understand we were coming off the dot-com crash and the 9/11 attacks. We are seeing the downside of my choice now, but we will never know how bad things would have been had I kept rates higher."
Blah blah blah. There's all kinds of stuff he could have said.
But instead, he said, "Yep, I used to think markets worked, and now I realize they don't. I am shocked at how wrong Adam Smith was."
Again, checkmate.
He could have said, "It was the fault of Barney Frank and ACORN." He could have said, "There were many causes, and I'm still studying it."
Since he was willing to admit he was at fault, why could have said, "In retrospect I may have kept rates too low for too long, but you must understand we were coming off the dot-com crash and the 9/11 attacks. We are seeing the downside of my choice now, but we will never know how bad things would have been had I kept rates higher."
Blah blah blah. There's all kinds of stuff he could have said.
But instead, he said, "Yep, I used to think markets worked, and now I realize they don't. I am shocked at how wrong Adam Smith was."
Again, checkmate.
I think Mr. Greenspan is playing to the audience of people who will be writing his place in history. It would have been an act of principle for him to defend the markets, but he'd have been alone in doing so amongst the elites.
You are right that there are things he could say which would have exonerated him somewhat, but he'd be bucking the entire wave of powerful people's opinions.
Maybe I just expected too little from him, but I wasn't surprised.
Jim O'Connor
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You are right that there are things he could say which would have exonerated him somewhat, but he'd be bucking the entire wave of powerful people's opinions.
Maybe I just expected too little from him, but I wasn't surprised.
Jim O'Connor
# posted by : October 27, 2008 at 9:14 AM
: October 27, 2008 at 9:14 AM Subscribe to Post Comments [Atom]
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