Behold Greenspan-Shiva

A little learning is a dangerous thing
Drink deep, or taste not the Pierian spring
There shallow draughts intoxicate the brain,
And drinking largely sobers us again.
Tired at first sight with what the muse imparts,
In fearless youth we tempt the heights of arts
While from the bounded level of our mind
Short views we take nor see the lengths behind
But more advanced behold with strange surprise,
New distant scenes of endless science rise!
So pleased at first the towering Alps we try,
Mount o'er the vales and seem to tread the sky,
The eternal snows appear already passed
And the first clouds and mountains seem the last.
But those attained we tremble to survey
The growing labors of the lengthened way
The increasing prospect tires our wandering eyes,
Hills peep o'er hills and Alps on Alps arise!
Alexander Pope - Essay on Criticism

There is a Zen saying, One moon shows in every pool; in every pool, the one moon, which I find to be a wonderful description of the relation between internal minds and the external world. The corollary saying A finger pointing at the moon is not the moon is an earlier manifestation of Korzybski's maxim the map is not the territory i.e. the words one uses to describe a phenomenon are not the phenomenon, the thoughts in your head of the external world are not the external world. Yes, I promised a bit of Greenspan today and I'll get there, but first I'd like to bring a few thoughts to the foreground of your mind to act as an anchor.

Man has been thinking about the experience of life for a very long time. Throughout that time, as each culture or collective sense of the world has waxed and waned, the same elemental questions keep popping up. In Philosophy circles one of these issues is expressed as the problem of universals; what is the relation, if any, between a general word or thought and the "real world" for want of a better phrase. Here's the kicker, your ability to understand the external world will be profoundly affected by your answer to this question...and everyone has to make a choice, whether you are aware of that or not.

Keeping those thoughts in mind, let's turn to the big cheese himself, Fed Chairman, Alan Greenspan. My professional life in finance has coincided almost exactly with Greenspan's tenure. Ever since the crash of '87 that served as his "wake up" call, I've been reading his speeches, parsing his comments and trying to get my head around his philosophy. I've found this no easy task; as he once noted in a speech, I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said. Like Rep. Ron Paul of Texas, I've raged at his seeming about face from Gold Standard advocate in 1966 to High Priest of Fiat Money. Like an impudent child in a classroom I've poked fun at seeming contradictions in his speeches. Like a tenured college professor who confuses his view of the world with metaphysical truth, I've noted that Greenspan alternatively "gets it" or "doesn't get it" when I perceive his comments to be in accord or discord respectively, with my own views. What I haven't done is to take a step back and remember that he is just a man, or in Zen terms, one of many pools reflecting on the light of the one moon.

The child who became the man was born in 1926 in the Washington Heights area of NYC. According to most accounts I've read he was a good student, class president and a jazz musician of some acclaim. After dropping out of Julliard he switched gears from music to money, enrolled in NYU and earned his BS and MA in Economics.

Although he was employed in the "suit and tie crowd" Greenspan in his mid twenties hadn't yet turned his back on artistic bohemia. He met an artist, [Thanks to a reader who alerted me to an error, the Joan Mitchell to whom Greenspan was married was not the abstract expressionist, but more of a formalist], with whom he was married briefly, Joan Mitchell, who introduced him to Ayn Rand, nee Alissa Zinovievna Rosenbaum, the author of a novel with a cult-like following, The Fountainhead. Although Greenspan initially was not enthused about Rand, Ms. Mitchell, before, during and after their marriage, kept urging him to open his mind to her philosophy given his own views. Eventually he did opt to associate with Rand, quite closely, and in the process decided his answer to the immortal question of universals.

Justin Martin, in Greenspan: The Man Behind Money, describes that decision process:

Mitchell continually urged Greenspan to be more open toward Rand and her circle. Given his personality, she was certain that he would respond to objectivism's emphasis on rationality and individualism. It was through her that Greenspan got to know Nathaniel Branden, objectivism's chief proselytizer. Over several months in 1954, they met a number of times, sometimes in restaurants, sometimes at Branden's apartment at 165 East 35th Street.

.....

Branden kept after Greenspan. At their meetings, Greenspan would say things such as: "I think that I exist. But I don't know for sure. Actually, I can't say with certainty that anything exists."

[note: According to Nathaniel Brandon Greenspan was philosophically a logical positivist and economically a Keynesian when he met Rand. Logical Positivists are skeptical of theological and metaphysical propositions [i.e. assumptions] and exclude them from logical reasoning. To those of this persuasion, the logical truth of a proposition must be ultimately grounded in its accordance with the (physical) material world. This rigidity might seem just the ticket but as Descartes' plunge into the skeptical abyss suggests, if you can't assume the universe is real or even that you exist, two of those aforenoted metaphysical propositions, then there can be no accord, for there is nothing with which to compare the thought. In a sense logical positivism's view of the world puts the cart before the horse, logic is great once you have some assumptions and associations with which to work, but useless without, call it a case of analysis-paralysis. Greenspan's doubts are entirely consistent with this philosophy.

.....

One day, Branden was riding in a cab with Rand. He had some surprising news and could hardly contain himself. Finally, he just blurted it out.

"Guess who exists?"

Rand was shocked.

"Don't tell me," she said, "you've won over Alan Greenspan."

"Yes, I have," he answered. "And I think you're going to change your mind about him. I think he's a really interesting man with a very unusual brain."

I wonder if he knew he was walking in Descartes' footsteps when he was soul searching, or if he questioned whether the road he took out of the skeptical pit, Rand's road of self affirmation [a is a, I exist, existence exists], was really a road at all, but we'll get back to that.

As noted in this article, once he made his choice in 1954, Greenspan's close association with Rand continued throughout the rest of her life:

...Greenspan was a member of Rand’s inner circle during this entire period and beyond. He lectured on economics for the Nathaniel Branden Institute. He wrote for the first issue of The Objectivist Newsletter, and when Rand broke with Branden, he signed a public statement condemning the traitor “irrevocably.” When Gerald Ford appointed him to the Council of Economic Advisors, he invited Rand to his swearing-in ceremony, and attended her funeral in 1982.

The article also notes that Greenspan's name first appeared in the NYTimes in the fall of 1957 not, as one might expect, in connection with politics or economics, but as the author of a 73-word letter to the editor of the Times Book Review. The future head of the Federal Reserve wrote to protest a hostile review of Ayn Rand’s novel Atlas Shrugged that had appeared a few weeks earlier. Here I see evidence of his choice in the question of universals, there is only one interpretation to each thing, those who don't see what I see are wrong.

In digging through the research materials to put this essay together I recalled my own flirtation with Rand's views. Fortunately, I believe, I didn't read Rand as a soul searching twenty-something, nor did I have to contend with her physical presence while I entertained her views, as did Greenspan, but rather somewhat later in life, intrigued by her economic views, which were, in the main, copied from the Austrians. Even more fortunately, I had read enough philosophy before reading Rand to have my own opinions on some of the essential questions of the discipline. She was not the medium (as she was for Greenspan) through which I discovered that man had been pondering the same questions that I pondered. I am most thankful to her, in an ironic sense, for leading me to reinvestigate Plato's thought. In hindsight, I didn't have much grasp of Plato when I read selections in college, now I agree, in a sense, with Whitehead, The safest characterization of the European philosophical tradition is that it consists of a series of footnotes to Plato.

As her, in my view, simplistic treatment of certain of the essential questions of philosophy had already led me to view her work with skepticism I didn't read her novels, The Fountainhead and Atlas Shrugged, in full, although I did check out some of the more important, according to Objectivists, sections when I popped into a library and bookstore. Neither of the books spoke to me on first acquaintance almost a decade ago.

In between then and now I've done a lot of reading, had a child and, well, aged a bit. My sense of the world has changed. I've revisited some of the "more important" sections and plot lines of those two novels. Sticking with reasonably contemporary comparisons, Tolkien's Lord of the Rings evidences to me much deeper scholarship in a much easier to read package, in my view, a sign of true genius-making the complex, simple. Tolkien's study of the relations between man and the language he uses both in elemental and complex forms, the words themselves and the literature respectively, led him to imagine a world where the effects of history on today were clear and unavoidable. Tolkien's heroes were more caught in the flow of the times than Rand's drivers of the world who could turn the flow of history on a dime.

As far as novel as metaphor for the times, I much prefer Kesey's One Flew over the Cuckoo's Nest. Kesey's work, like Rand's promotes a sense of individualism and an awareness of the madness of the system. Kesey's brand of individualism, and freedom, however, was more consistent with the 19th century Transcendentalists, Emerson and Thoreau- while you are entitled to them, don't impose your ideals on others, let people discern their own truth. Rand's vision of individualism seems to me confused, as if it needs to be validated by everyone else, which seems more like solipsism.

Neither Howard Roark or John Galt, the heroes of her two main novels, are complaining that they can't do what they want, although they phrase it that way, but rather that the people around them aren't giving them enough credit and jumping to do their bidding. Roark could design any building he wanted, nobody was stopping him. The problems came because, in order to manifest his vision in the real world he needed other people, some to work and some to invest, but none to think on their own. Both "heroes" were, in the end, destructive, much as a young child can be when he loses a board game- "if I can't win then nobody can play."

During the climactic courtroom monologue, Roark says The creator lives for his work. He needs no other men. His primary goal is within himself. The parasite lives second-hand. He needs others. Others become his prime motive. According to that definition it seems to me that Roark is a parasite, as is Galt. If you really don't need others, follow Thoreau to Walden Pond, don't complain that the "others" you supposedly don't need aren't thinking, feeling and doing what you want them to. In her own way, Rand made a wonderful Nurse Ratched, imposing her "sanity" on the world, whether they wanted it or not.

Yet, I can see how this book would appeal to a bunch of young, intellectual city dwellers who have little to no sense of the grunt work required to bring any idea into reality, or, more pertinently, the grunt work required to keep the people of that city fed, watered, clothed and housed. This isn't to denigrate "reason" but to understand that a man alone with only his thoughts will soon starve. While Marx tried to convince people that a headless workman could rule the world, Rand tried to convince people that a bodiless thinker could. While I agree with the essential critique, that relations between the 2 classes aren't great, both responses seem to be an exercise in cutting off one's nose to spite one's face. My wife and I put a fair bit of thought into planning our garden. We also break the soil, fertilize, plant according to the plan, weed, water when needed, and harvest.

Leaving aside my perspective on Rand, let's return to her effect on devotees. To highlight the allure of Ms. Rand and her views consider the case of Libertarian Philosopher/Economist Murray Rothbard, born in the same year as Alan Greenspan, 1926. After reading Atlas Shrugged, Rothbard wrote to tell Rand, Atlas Shrugged is the greatest novel ever written...when, in the past, I heard your disciples refer to you . . . as one of the greatest geniuses who ever lived" he had thought this to be "the outpouring of a mystic cult. But, now, upon reading Atlas Shrugged, I find I was wrong. A few months later, when Rand learned that the economist Murray Rothbard's wife, Joey, was a devout Christian, she all but ordered that if Joey did not see the light and become an atheist in six months, Rothbard, who was an agnostic, must divorce her. Rothbard never had any intention of doing anything of the sort, and this estranged him from Rand, who found such "irrational" behavior intolerable. Rothbard would later write one of the first exposés of what he called The Ayn Rand Cult.

I'm not arguing that Greenspan was or still is some sort of mind controlled Trilby to Rand's female Svengali. As is noted throughout the accounts of their relationship, Greenspan was treated differently by Rand than her other acolytes. Although she named Nathaniel Brandon as her intellectual heir, until their affair (they were both married but not to each other) went sour, Greenspan seems to me to have grasped the essential Rand, although with an even shallower scholarship than his mentor; the ability to convince others that you are right, to evoke what Emerson called the idolatry of the herald, using that tool, rhetoric, so well described by her muse, Aristotle.

Let me illustrate this process or rather, describe a possible demonstration occurring right now. Part of the reason I went into such detail and used such a broad range of allusions was to illustrate a rhetorical tool, the art of weaving the spell of a knowledgeable person. I could just as easily have written, Greenspan is a book smart city boy whose life has been so isolated from the real world that he likely can't change the oil in his own car, or connect his own computer to the network. That anyone thinks he has some special grasp of the economy, which is made up of millions of people doing things just like that, seems silly to me, but without all the allusions and subordinate clauses it wouldn't enter the mind the same way, although the essential message would be similar.

If you have been blessed with both the time and inclination to spend the hours necessary to form your own opinions on the subjects discussed you are likely to read this essay with a critical eye. You might disagree with my perspective on Logical Positivism, for instance. As Carlyle wrote, the eye sees what the eye has means of seeing. If, by contrast, I invoke names and ideas with which your acquaintance is limited, you could easily come to the view that I seem like a smart guy who knows his stuff, the first step in the process of herald idolatry, confusing the message with the messenger. This process can occur in both minds, the listener's and the speaker's, or in this case, writer's. How tempting to pass on the wisdom of others as your own, to fail to see the sense behind Newton's metaphor, standing on the shoulders of giants.

This is to argue that Greenspan, like Rand and many others before them fell into the trap of the aspiring intellectual, a la Pope, allowing the shallow draughts of the first few sips of wisdom to intoxicate the mind, confusing the sense of having a sharper, quicker, and more informed mind on certain topics than many people one meets, with being a wise person. As the proliferation of advisory newsletters suggests, it seems to be far easier to convince people, including and especially yourself, you are right, than to actually be right. Going further, I believe a focus on convincing other people of your brilliance is a sure way to lose sight of the real object, having an accurate sense of the real world. Learning, at least as an adult, is mainly an exercise in error correction. If you spend lots of time convincing people you don't make mistakes, you can't be learning much.

As Rothbard noted about Greenspan's forecasting firm, Townsend-Greenspan (thanks, RJ); I found particularly remarkable the recent statements in the press that Greenspan's economic consulting firm of Townsend-Greenspan might go under, because it turns out that what the firm really sells is not its econometric forecasting models, or its famous numbers, but Greenspan himself, and his gift for saying absolutely nothing at great length and in rococo syntax with no clearcut position of any kind.

As to his eminence as a forecaster, he ruefully admitted that a pension-fund managing firm he founded a few years ago just folded for lack of ability to apply the forecasting where it counted- when investment funds were on the line.

Even adulatory speeches, like this from Alan Blinder, who worked with Greenspan at the Fed, contain interesting observations.

For years now, US monetary policy has been said to be on "the Greenspan standard" meaning that it is whatever Alan Greenspan thinks it should be. What sort of standard is that?

Greenspan cherishes option value. Federal Reserve policy under his chairmanship has been characterized by the exercise of pure, period-by-period discretion, with minimal strategic constraints of any kind, maximal technical flexibiliy at all times, and not much in the way of explanation.

....The Greenspan standard is highly situational, even opportunistic. FOMC decisions are made one meeting at a time, without pre-commitment to any future course of action and often without much indication as to what those future actions might be. The secret to Greenspan's success remains a secret.

.....Mindful of the fact that the financial markets now view Chairman Greenspan's infallibility more or less as the Chinese once viewed Chairman Mao's [note: is this a Freudian slip? or a poke...the Chinese thought Chairman Mao was infallible in large measure because he killed or tortured those who disagreed, which, come to think of it, is, in essence what intervention does in the financial markets, kill and torture, in the financial sense, those who disagree with the Chairman's view] we nonetheless turn...to some possible negative aspects of the Greenspan legacy....we ask whether the extreme personalization of monetary policy under Greenspan has undercut his ability to pass any "capital" on to his successor and/or has undermined the presumed advantages of making monetary policy by committee.

So 18 years of Greenspan and we throw out the ideas of policy consistent with schools of thought, distributed decision making with its checks and balances, and even the virtue of passing on wisdom to those who come after. Oh well, what did you expect from a guy who never had kids.

Perhaps the event which brought the Rand/Greenspan relationship to the fore of my mind was his recent speech on Economic Flexibility. Here we find the heroic Adam Smith whose "prescription" of free markets became the guiding philosophy of the United States. He continues in this line of thought, noting the "assaults" on the system from other thinkers, and the damage done by Keynes. This, to me, is Rand's philosophy of human achievement, that extraordinary men, by virtue of individual human reason, invent revolutionary ideas about what others ought to do based on their much clearer vision of how the world works.

The true title of Smith's book to which Greenspan refers is An Inquiry into the Nature and Causes of the Wealth of Nations, in other words, an observation and speculation as to cause, not as he terms it, a prescription. Students of Philosophy might notice the is-ought problem described by one of Smith's contemporaries, David Hume, of which Smith was very aware. As Hume might have put it, just because other wealthy nations have done these things does not mean that if my nation does them, they will be wealthy. The more offensive notion, to my understanding of economic history, is that free market institutions somehow began with Smith. I imagine it would be offensive to Smith himself, who was drawing on centuries of history to make his observations.

Indeed, Smith outlines the emergence of what we might call, free market institutions, in Europe:

At first, the farm of the town was probably let to the burghers, in the same manner as it had been to other farmers, for a term of years only. In process of time, however, it seems to have become the general practice to grant it to them in fee, that is for ever, reserving a rent certain never afterwards to be augmented. The payment having thus become perpetual, the exemptions, in return for which it was made, naturally became perpetual too. Those exemptions, therefore, ceased to be personal, and could not afterwards be considered as belonging to individuals as individuals, but as burghers of a particular burgh, which, upon this account, was called a Free burgh, for the same reason that they had been called Free-burghers or Free-traders.

Along with this grant, the important privileges above mentioned, that they might give away their own daughters in marriage, that their children should succeed to them, and that they might dispose of their own effects by will, were generally bestowed upon the burghers of the town to whom it was given. Whether such privileges had before been usually granted along with the freedom of trade to particular burghers, as individuals, I know not. I reckon it not improbable that they were, though I cannot produce any direct evidence of it. But however this may have been, the principal attributes of villianage and slavery being thus taken away from them, they now, at least, became really free in our present sense of the word Freedom.

I note these few differences between Greenspan's expressed view on Smith and what Smith actually wrote to highlight the effects of the philosophical choice Greenspan made in following Rand's path out of skeptical solipsism, which, in my view, is not a path at all. Rand's axiom, existence exists, merely elevates to a tautology one's perceptions and observations of the external world, i.e. these things I see, hear, smell, taste, touch and think are true. More succinctly it is the philosophy that one is always right, ridiculed so well by Lewis Carroll, When I use a word,' Humpty Dumpty said, 'it means just what I choose it to mean -- neither more nor less.'

Greenspan would have you believe that the US economy has become "more free" since the 70's, or as he puts it "more flexible." He argues; These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago. He continues: The impressive performance of the U.S. economy over the past couple of decades, despite shocks that in the past would have surely produced marked economic contraction, offers the clearest evidence of the benefits of increased market flexibility.

We weathered a decline on October 19, 1987, of a fifth of the market value of U.S. equities with little evidence of subsequent macroeconomic stress--an episode that hinted at a change in adjustment dynamics. The credit crunch of the early 1990s and the bursting of the stock market bubble in 2000 were absorbed with the shallowest recessions in the post-World War II period. And the economic fallout from the tragic events of September 11, 2001, was moderated by market forces, with severe economic weakness evident for only a few weeks. Most recently, the flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for oil and natural gas that we have experienced over the past two years. The consequence has been a far more stable economy.

I laughed out loud when I first read this thinking, what fun it must be to be a legend in one's own mind. What flights of solipsistic fancy must be required to confuse the effects of monetary easing, with a more flexible system. Here's a question for Mr. Greenspan, if the financial system is more flexible now than it was during the 70s why is it that you fear to invert the yield curve or even make a bold move and hike rates by more than 50 basis points now? From 1968 through 1987 when Greenspan was appointed, the spread between Fed Funds and the 10 year note was more than 100 basis points negative for a total of 54 months. From 1987 to today that same spread has been more than 100 basis points negative all of 3 months. Why has that same spread, which measures, in a sense, the vig of the Federal Reserve system, what Adam Smith might call a toll, perhaps even an example of "villianage", averaged 150 basis points during Greenspan's tenure but a mere 37 basis points in the preceding 20 years? Why is it that Paul Volcker, among many others, sees such perilous undercurrents beneath the surface of the US economy while Greenspan does not?

Yet there is one element of Greenspan's vision with which I certainly agree, his sense that the US is moving back to the forefront of what Joseph Schumpeter, the renowned Harvard professor, had called "creative destruction." As Greenspan is an atheist who thinks that great minds invent notions out of thin air, he might not know that Schumpeter is referring to one aspect of the Vedic Trinitarian Godhead- Shiva (Siva). According to this view of the world, there are 3 stages of a culture; the Brahma or creative phase, the Vishnu or preservation phase and the Shiva or destructive phase that sets the stage for the return of Brahma and rebirth.

Shiva is known as the auspicious or perfect one who nonetheless, or perhaps by virtue thereof, brings destruction. To me he represents the dictatorial stage in a culture, the view that man has been perfected and can fix what ails the world, rather than come to peace with the way it is. Behold Greenspan-Shiva, the destroyer who will teach us all that man's individual reason without limit or check is but an exercise in solipsism. Worship him if you will, and everyone who trusts in the solvency of the financial system does in some way or another, but know what you worship- a man who believes in the virtues of obscurantism, a man who has called into question the practice of distributed decision making and of checks and balances within a decision process, a man who couldn't see the reason to pass on his wisdom to those who must follow or perhaps there just wasn't anything to pas on. Of course, I could be all wrong and he could really be a what the Randians call a Francisco, intentially imploding the monetary system from within.

If I was John Galt I would tell you that if you didn't write and tell me I was the greatest writer who ever lived I'd put some virus in your computer that would destroy it. As I'm not, feel free to critique the view, or even find it downright silly. Ah the virtues of a purer individualism.