Friday, 12 December 2008

Culture wars over the economic crisis

You’ve no doubt heard the whole litany: Alan Greenspan stuffed up.  Alan Greenspan admitted “a flaw” in his hands-off ideology.  Alan learned his chops from his friend Ayn Rand. So that means Rand’s Objectivism has failed.

I don’t know about you, but I keep hearing this all the time. “What makes it especially revolting,” says Harry Binswanger, longtime friend of Rand (who died in 1982), “is that the real destroyer of the economy is Greenspan, through his inflation-generating last years at the Fed.”

Commentators from Gareth Morgan to Harry Binswanger to Roger Kerr to George Reisman to the contributors at the Mises Institute have pointed this out, but for the most part haven’t been heard.  They’ve cogently, responsibly and thoroughly destroyed the myth of free-market failure, pointing out the role and responsibility of Greenspan and his central bankers for the present crash (whose seeds were set in Greenspan’s massive credit expansion from 2001 to 2004), and for all the earlier crashes over which they presided.  The priority of Alan Greenspan’s Fed in particular, notes Morgan, has become to keep economic growth going by the continual expansion of credit. “So much so that the periodic creative destruction that markets naturally undertake to prevent excesses, was no longer considered necessary. Oh dear.”

But for the most part, the mainstream media isn’t really listening.  The real story doesn't fit their pro-big-government playbook.

Now, however, Newsweek magazine has put the question to the Ayn Rand Institute’s Yaron Brook.  His response? 

    This is not a failure of free markets, this is not a failure of capitalism, but this is a failure of the exact opposite. It's a failure of the regulatory state. It's a failure of all the government policies of the last eight years. Actually, the last 95 years.

    Why do you say the last 95 years?
    I believe that the No. 1 cause of the current crisis is Federal Reserve policy. [The Federal Reserve was created in 1913.] The Federal Reserve, by necessity, creates economic problems; no matter how good a Federal Reserve chairman is, he's going to create cycles of booms and busts.

It’s a great (if short) interview.  You should read it.

And Britain’s Telegraph carries this blog from Ayn Rand Institute’s Alex Epstein: “What capitalists need to understand,” penned in response to Iain Martin's observation in the Telegraph that "A culture war has been launched against free markets and so far the hostilities have been astonishingly one-sided." This “unfortunately applies just as much to America as to Britain,” says Epstein (as it does here).

Our capitalists, from think-tank intellectuals to businessmen, are unforgivably timid in the face of an anti-capitalist onslaught of bailouts, handouts, deficit spending, and central planning. Why?

Good question – and he has the answer.  Find out what capitalists need to understand to make them more vocal in defence of their values.  What they need to know above all is this:

Today's crisis illustrates the evils of government intervention in the economy and vindicates supporters of laissez-faire capitalism… Today's events are not unexpected consequences of laissez-faire that Rand, Ludwig von Mises, and others failed to anticipate--they are expected consequences of the mixed economy that they explained decades ago.

The ‘other’ side isn’t silent, and they’re wrong.  So why should we be so silent when, unlike them, we have reality on our side.


  1. Peter, have you read "I, Greenspan", by Bill Bonner? It is a BEWDY.......


    "....I had weaseled (why not be honest about it?) my way to the top post by knowing the right people and by making myself generally agreeable, and helpful, and by not saying anything anyone could disagree with. That was the original reason for what the press called "Greenspan speak." My private thoughts remained mine alone. All the public and the politicians got was gobbledygook, but for good reason.

    They would not have wanted to hear what I really thought. So, I did not tell them. For I knew well and good what generally happened when politicians and central bankers got their hands on soft money and a compliant central banker. I was not born yesterday. They use their control of the money to cheat people. It is as simple as that. (I explained this early on in my career; fortunately, no one bothered to read what I wrote. Otherwise, I never would have gotten the job.) If central banking were an honest métier, there would be no reason to have it at all. Private banks could do the job better.

    But people are ready to believe anything. Somehow, they think that a collection of rich financiers and power-mad politicians got together to create and run a central bank for the benefit of the people.....

    "......I return to my narrative. After I made my remark about "irrational exuberance," I was called into Congress. The politicians who confronted me were the usual oafs and know-nothings. They made it clear that if I wanted to hold onto my job, I would have to stop worrying whether asset prices were too high; instead, I would need to do all I could to goose them up! It was on that very day, I recall it well, that what I had previously seen only in foggy theory came out into the clear, bright daylight of applied central banking.

    No one wants honest money. No one. The politicians, bankers, investors, voters, and householders – anyone with a voice in the matter wants "easy" money. It is just too delicious to resist. (I wondered what kind of a central banker would stand against them; he would need a backbone of titanium like Paul Volcker, and a head as thick and hard as a vault.) Debtors want a little inflation to lighten their burdens and put a wind to their backs. Creditors want inflation to swell their asset values. Politicians want to be re-elected. Businessmen want customers with money to throw around. Is there anyone who doesn’t appreciate a little inflation?

    And yet, of course, I always knew the answer. Easy money only works by defrauding people into thinking they have more money than they really do. Easy come; easy go. They get it; they spend it. Before you know it, you have a boom. But people soon adjust their expectations. Prices rise to catch up to new money. Debt levels increase, and with them come heavier debt service costs. The magic fades. What can a central banker do? He can do the right thing. He can "take the punch bowl away," as my predecessors used to say. But this is where the trouble begins. Take away the punch bowl, and they begin punching you! I recall they burned Paul Volcker in effigy on the Capital steps when he did it. They would have burned him alive if they could have gotten their hands on him.

    Why should I, Greenspan, suffer such a fate? No, it was not for me. This was the "golden predicament" I faced. Yes, I knew well that the nation would be better off if the punch bowl were removed, but I knew that I would be removed too, if I did it. And I knew, also, that it would be just a matter of time until the pressure for easy money would overwhelm any resistance a Fed chairman could put up. No pure paper money system has ever lasted. People can never resist the temptation to make the money easier and easier…until it is so wobbly and woozy it falls on its face. It’s better that it falls sooner rather than later. It’s better that the lesson is taught now, rather than 10 years from now. It’s better that the lean times come on the next man’s watch, not on mine! That’s what I owe to old Ayn; she taught me who rules Greenspan – Greenspan! Ayn taught me the number one rule: Look out for Numero Uno.

    I remember it so clearly. I was sitting in a House committee hearing room. My tormentors kept asking questions. I kept giving the kind of answers for which I later became famous…answers that didn’t say anything. And I thought to myself: if these lardheads want easy money, I’ll give them easy money. I’ll give them the easiest money the planet has ever seen! I’ll give it to them good and hard!

    And so, I did.....

    "......Who can argue with such a record? Who can compete with it? Who would want to?

    But that is the smooth, perverse pleasure a cynical old man takes in his achievements. I have practically ruined the nation, and I know it. If you distributed the cost of the federal government’s programs, promises, and pledges to the voters, along with the nation’s private debt, the typical household, and the nation itself, would be broke. And yet, almost everywhere I go, I am revered as a maestro…saluted as if I were a war hero. It is as if I had won World War II all by myself. The same numbskulls that wanted easy money 10 years ago, now praise me for causing what they call "The Great Moderation," as if there were anything moderate about America’s borrowing binge.

    Others say that my real legacy is that I finally "made central banking work." Yes, I made it work…just like it’s supposed to work, giving the people enough rope so they could hang themselves. That’s what they’ve done. Now, they dangle from a long rope of mortgages, deficits and credit cards.

    And I am delighted. Soon, people will be able to see how central banking really works. And poor Ben Bernanke will get the blame for it. He and his stupid helicopters…he almost deserves it."

  2. I don't believe pro-capitalism commentators are being silent. Several prominent ones - Sowell, Stossel, and many others continue to speak out. However, it's difficult to compete when HuffPo gets 4.5 million page views in a month, about 5-10 times the number of the nearest 'right wing' competitor.

    Of course, it doesn't help that virtually all the major news outlets and universities are rabidly anti-freedom.

    Frankly, I don't know of any short term solution. Apparently the world is simply going to have to relearn the lessons of the past 75 years all over again. Let's hope it survives them sufficiently intact to still have a capitalist system when they've been re-learned.

  3. Jeff

    Reckon most people won't want Capitalism. By far the most people are suckers- greedy, short sighted, self-deluded and utterly immoral. They are suckers for a pyramid scheme. They want collectivism; the type where they think they will get to do what they like at someone else's expense with other people's money. They wish for a collectivism of a type where they think they'll be treated special and different regardless of what they are, what they do and what the achieve by their own abilities and efforts. They lust for a collectivsm where they receive what they want regardless of what they are. They want security and safety without having to provide it for themselves. They definately want the insulation of egalitarianism so they never have to confront themselves honestly.

    What they'll eventually get is impoverishment, violence and likely war.

    What I'd like to know is how the USA got to be as it is and why it was that the founding fathers were not of the type that passes for leadership today. Why did they think and act better than that?


  4. Roger Kerr quote from the Herald:
    Scholars today widely agree that the Great Depression of the 1930s was largely made by government via excessively tight monetary policy by the US Federal Reserve, beggar thy neighbour protectionist trade policies and other errors.

    PC, is it possible that Roger Kerr, has been reading your blog in which he stumbled here (Not PC) first across the point he made in his Herald article (ie, the quote above)? If so, he should have attributed how he stumbled across it thru here at Not PC in which he researched the topic further and found those scholars you've frequently quoted (Reisman, etc...). The reason I asked, is that I've never seen him defended capitalism in the media like that article you linked by stating that the US Federal Reserve (and government interference) are the problems and not capitalism itself.

    Perhaps, next time you bump into him somewhere, then you should alert him to the fact that he got some vital heads up from reading Not PC about the US Federal Reserve's tight monetary policy which led to many problems and he should shout you a VB beer.

  5. VB? What did Perter do wrong?

    Haven't had time to read these great links, so I apologise if the answer is obvious, but I'm wondering why Ford, GM and others don't ask for a dose of capitalism instead of a government bail-out?


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