As legend has it, Federal Reserve chairman Alan Greenspan was once a member of Ayn Rand’s 1960’s salon. He was an invited guest at Rand’s apartment and apparently was close enough to have read her epic Atlas Shrugged as it came off her typewriter. How lucky for him. But if Greenspan’s subsequent career and recent congressional testimony is any indication, he must have left his reading glasses at home.
When Greenspan testified last week before the US Senate Committee on Banking, Housing, and Urban Affairs, the notoriously obtuse chairman was quite succinct. According to Greenspan:
“Why did corporate governance checks and balances that served us reasonably well in the past break down? At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed. Too many corporate executives sought ways to “harvest” some of those stock market gains. As a result, the highly desirable spread of shareholding and options among business managers perversely created incentives to artificially inflate reported earnings in order to keep stock prices high and rising. . .
. . . It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously.”
So according to Mr. “Irrational Exuberance,” the current market problems have not been caused by ignorant Fed policy, a weakened dollar, destructive tax law, an antitrust regimen run amuck, a poorly prosecuted war against terrorism, new regulations that threaten corporate governance with political prosecutions and too much government spending. Rather, they are the fault of “infectious greed” caused by our being too wealthy. Remember, this is a man who said that the stock market rise of the late ‘90s was irrational in the first place. Quite characteristically, Greenspan blames the victim.
As CMDC Senior Policy Analyst Richard Salsman recently noted in his investment newsletter, it’s not as if honesty and competence was on the rise until March 2000 and then simply disappeared from the face of the earth. Salsman points out that if Enron and WorldCom are guilty of malfeasance, then the 99.9% of the market that is honest should still be thriving. Yet the whole market is reeling. The only institution that can affect the market on that scale is government. Only government malfeasance could have power enough to explain the past two years of losses.
The fact is if Greenspan possessed even a basic respect for the market, that is, a respect for the virtue of individual productivity and the benefit of mutual trade to mutual advantage, he would not be blaming the market for the recent spell of losses. Instead, he would be defending it from what has become an unrelenting attack. He would identify that the losses engendered by companies like Enron and WorldCom are isolated and temporary and not some sort of “infectious” malady. Rather than take part in the open season on CEO’s, he would instead defend profit as such and declare open season against the real root of the market’s woes: destructive government policy. But as this once-student of Ayn Rand has long failed his mentor, perhaps it’s time to start getting used to the bears.
