Alan Greenspan / b. 1926 / New York, USA / Economist, Chairman of the Federal Reserve
The world of antitrust is reminiscent of Alice’s Wonderland: everything seemingly is, yet apparently isn’t, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet “too much” competition is condemned as “cutthroat.” It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as “enlightened” when initiated by the government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict—after the fact.“Antitrust,” address to the National Association of Business Economists, Cleveland, Ohio, September 25, 1961; published in Ayn Rand, ed., Capitalism: The Unknown Ideal (1966).
Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtue, not vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventative law, snooping bureaucrats, and the chronic goad of fear.“The Assault on Integrity,” in Ayn Rand, ed., Capitalism: The Unknown Ideal (1966).
Intensive research in recent years into the sources of economic growth among both developing and developed nations generally point to a number of important factors: the state of knowledge and skill of a population; the degree of control over indigenous natural resources; the quality of a country’s legal system, particularly a strong commitment to a rule of law and protection of property rights; and yes, the extent of a country’s openness to trade with the rest of the world. For the United States, arguably the most important factor is the type of rule of law under which economic activity takes place. When asked abroad why the United States has become the most prosperous large economy in the world, I respond, with only mild exaggeration, that our forefathers wrote a constitution and set in motion a system of laws that protects individual rights, especially the right to own property. Nonetheless, the degree of state protection is sometimes in dispute. But by and large, secure property rights are almost universally accepted by Americans as a critical pillar of our economy. While the right of property in the abstract is generally uncontested in all societies embracing democratic market capitalism, different degrees of property protection do apparently foster different economic incentives and outcomes.Address, “The critical role of education in the nation’s economy,” 2004 Annual Meeting, Greater Omaha Chamber of Commerce, Omaha, Nebraska, February 20, 2004; accessible on federalreserve.gov.
In general, corruption tends to exist whenever governments have favors to extend, or something to sell.Alan Greenspan, The Age of Turbulence: Adventures in a New World (2008).
We are going through a period with no precedent in American history.Reported by Nicholas Lemann in “The Hand on the Lever,” newyorker.com, July 21, 2014.
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense—perhaps more clearly and subtly than many consistent defenders of laissez-faire—that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.“Gold and Economic Freedom,” in Ayn Rand, ed., Capitalism: The Unknown Ideal (1966).
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.“Gold and Economic Freedom,” in Ayn Rand, ed., Capitalism: The Unknown Ideal (1966).
The reason there is very little support for the gold standard is the consequences of those types of market adjustments are not considered to be appropriate in the 20th and 21st century. I am one of the rare people who have still some nostalgic view about the old gold standard, as you know, but I must tell you, I am in a very small minority among my colleagues on that issue.Testimony, US House of Representatives Committee on Financial Services, July 22, 1998.
Greenspan on Greenspan
Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.Testimony, US Senate Committee; reported by the Los Angeles Times, September 27, 1987.
Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are don’t, frankly, matter. And I’ve had very good relationships with presidents.Interview with Jim Lehrer, “The NewsHour with Jim Lehrer,” pbs.org, September 18, 2007.
We generally did not talk about the stock market very much at the Fed.Alan Greenspan, The Age of Turbulence: Adventures in a New World (2008).
Housing Bubble of 2008
Without calling the overall national issue a bubble, it’s pretty clear that it’s an unsustainable underlying pattern.Reported by Edmund L. Andrews in “Greenspan is Concerned About ‘Froth’ in Housing,” nytimes.com, May 21, 2005.
. . . there can be little doubt that exceptionally low interest rates on ten-year Treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding and home turnover, and especially in the steep climb in home prices. Although a “bubble” in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.Testimony, “The economic outlook,” Joint Economic Committee, U.S. Congress, June 9, 2005; accessible on federalreserve.gov.
I really didn’t get it until very late in 2005 and 2006.Reported by Mark Felsenthal in “Greenspan says didn’t see subprime storm brewing,” reuters.com, September 13, 2007.
I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk.Alan Greenspan, The Age of Turbulence: Adventures in a New World (2008).
Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity—myself especially—are in a state of shocked disbelief.Reported by Stephen Foley in “Greenspan says crisis left him in ‘shocked disbelief,'” independent.co.uk, October 24, 2008.
Re: US Representative Henry Waxman’s question whether Greenspan had discovered a flaw in his free-market ideology.
Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.Testimony, US House of Representatives Oversight Committee; reported by Michael M. Grynbaum in “Greenspan Concedes Error on Regulation,” nytimes.com, October 23, 2008.
Much of the securitization took the form of collateralized debt obligations (CDOs) with senior credit tranches certified by rating agencies as AAA. It was the failure to properly price such risky assets that characterized the crisis.Alan Greenspan, The Age of Turbulence: Adventures in a New World (2008).
We are obviously all hurt by inflation. Everybody is hurt by inflation. If you really wanted to examine who percentage-wise is hurt the most in their incomes, it is the Wall Street brokers. I mean their incomes have gone down the most.Address, Washington, DC, September 19, 1974; published in US Government Printing Office, The Conference on Inflation—Health, Education, Income Security, and Social Services (1974).
We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?Lecture, American Enterprise Institute, Washington, DC, December 5, 1996.
It hardly makes any difference who will be the next president. The world is governed by market forces.Interview with Tages-Anzeiger, Zurich, Switzerland, 2007; reported by Adam Tooze in “Beyond the Crash,” theguardian.com, July 29, 2018.
History has not dealt kindly with the aftermath of protracted periods of low risk premiums.Address, “Reflections on central banking,” symposium, Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 26, 2005; accessible on federalreserve.gov.
The need for values is inbred. Their content is not.Alan Greenspan, The Age of Turbulence: Adventures in a New World (2008).