Clowning Around

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It is said that artists speak for the ages. In 1951,
Pablo Picasso described the end of our age when interviewed by Giovanni
Papini: "From
the moment that art ceases to be the nourishment of the best brains,
the artist can use all the tricks of the intellectual charlatan.
The refined people, the rich ones and the professional layabouts,
only want what is sensational or scandalous in modern art. And since
the days of cubism I have fed these boys what they wanted and pacified
the critics with all the idiotic ideas that went through my head.
Whilst I amused myself with all these pranks, I became famous and
very rich. I am just a public clown, a fairground barker."
The quotation is disputed. Whatever he said, Picasso's reputation
suffered no harm when this confession was published.

On February 21, 2008, the Financial Times
published the confession of Han de Jong, Chief Economist, ABN Amro
Bank: "I am obviously biased, but I find it sad to conclude
that the role of serious economists in financial institutions is
very limited today. We are little more than clowns, whose purpose
is to entertain clients…."

The substitution of image for substance, the promotion
of sensational or simply idiotic ideas that destroy reality, are
central to our time. Economic thought is a sad example of this deterioration,
personified by a charlatan of little substance. This is not to deny
the man credit for understanding how times were changing. Alan Greenspan
was one of the first to climb the greasy poll of superficiality.
He knew this path to the top did not include the study of economics.

Having earned a master's degree in economics from
NYU, Greenspan transferred to Columbia University in 1951. He pursued
his doctorate studies under Arthur Burns. Burns had co-authored
an influential book, Measuring
Business Cycles
. His academic achievements
were substantial as were his political instincts. Burns would head
President Eisenhower's Counsel of Economic Advisers (CEA) and be
named Federal Reserve chairman under President Nixon. Greenspan
would also serve in both positions.

Greenspan did not finish his coursework at Columbia,
but demonstrated his own political aptitude under Burns: He took
up the pipe – Burns' trademark. Picasso might explain that Greenspan
was Rene Magritte's subject in the surrealist's famous painting
of a pipe. Under the pipe, Magritte painted: "Ceci n'est pas
une pipe." ("This is not a pipe.") Greenspan understood
he was not smoking a pipe. He knew the forgone parchment from Columbia
was insubstantial compared to worshiping at Burns's doorstep. (When
Burns was Federal Reserve chairman, he lived in the Watergate complex.
When Greenspan moved to Washington as CEA director, he lived in
the Watergate complex.)

Lessons learned in young adulthood have a tendency
to stick. Alan Greenspan might have observed how promotion was leap-frogging
substance in post-War America. Lever Bros, the soap manufacturer,
moved its headquarters to New York. Meanwhile, industrial America
was heading for the suburbs. Why this journey? Chairman Charles
Luckman explained: "New York is the answer to our major problem
– selling…. All advertising centers in New York, all show business
except the movies. The platform from which to sell goods in America
is New York." Soap and Elvis needed a publicity agent.

Greenspan may have observed an economist (aside
from Burns) who shuffled seamlessly between academia and policymaking;
one who generated the media attention necessary to an economist-politician.
Harvard University professor Sumner Slichter told Washington that
the Federal Reserve must accept inflation. This would achieve extended
prosperity. (The Russians were catching up. Growth at any cost was
gaining traction.) For such advice, which could only warm a politician's
heart, Fortune magazine dubbed him the "father of inflation."
(What a relief from that fussy Federal Reserve chairman, William
McChesney Martin: "There is no validity whatever in the idea
that any inflation, once accepted, can be confined to moderate proportions.")

By the late-1950s, Greenspan was proprietor of Townsend-Greenspan,
an economic consulting firm. He headed President Ford's Council
of Economic Advisers in the mid-1970s. His economic forecasts were
abysmal. (Senator Proxmire: "…I hope… when you get to the Federal
Reserve Board everything will come up roses. You can't always be
wrong.")

This was of secondary importance. He received adulation
where no other CEA director had gone before: the front cover of
Newsweek, in the same year Jimmy Hoffa, Patty Hurst, and
Liv Ullmann were likewise honored. The CEA was flooded with autograph
requests. The clientele was not interested in the CEA director.
They wanted Greenspan's autograph because he was famous.

In August 1977, Elvis died. The nation mourned.
This was not due to his presumed talent: singing. Elvis himself
had said: "I don't know anything about music. In my line you
don't have to." In 1977, Alan Greenspan received his Ph.D.
in economics from N.Y.U. His thesis is a hodge-podge of articles
written in the 1950s. At least, that is the scuttlebutt. N.Y.U.
will not release his work. It doesn't really matter. It can be said
of Alan Greenspan, with some exaggeration that "He doesn't
know anything about economics. In his line you don't have to."

His line was fame. Greenspan followed the most direct
route: he dated the press. First Barbara Walters, then Susan Mills
(a producer for the MacNeil-Lehrer Newshour), then he married
a television personality, Andrea Mitchell. He gained entrée
to the celebrity circuit. At the home of Oscar and Francoise de
la Renta, Norman Mailer asked Giovanni Agnelli if he "was indeed
Alan Greenspan u2018the famous economist.' "

Townsend-Greenspan served Greenspan's own ambitions.
Of the early Reagan years, White House staffer Martin Anderson recalls:
"He had one life…. I don't think I was in the White House once
where I didn't see him sitting in the lobby or working the offices.
I was astounded by his omnipresence… He was always huddling in the
corner with someone." In 1983, he was featured in a New
York Times article about the lecture circuit ("The Superstars").
Readers learned that "Mr. Greenspan has emerged as the most
sought-after economist by lecture audiences worldwide."

Greenspan became Federal Reserve chairman in 1987
and served until January 2006. He continued his fame game. Fewer
than 10% of Americans knew the name of the Federal Reserve chairman
in 1979. In 2001, 90% knew Greenspan's name, though zero percent
knew what he was talking about. This was to his benefit. It was
believed he spoke on an elevated but indecipherable level. To the
dedicated student of Federal Open Market Committee transcripts,
Greenspan's contributions read like a screwball comedy. Few were
in on the joke, so he was recast. He was the greatest testament
of Magritte's warning to the twentieth century: "This is not
a Federal Reserve chairman." He played a deity, an icon, Zeus,
Moses, God — descriptions from an adoring or befuddled press. Greenspan
lived in his own bulletproof bubble. As has happened in different
countries at regrettable moments, the skeptic could only dismiss
the transcendental gifts of this very common man at the risk of
ridicule and loss of job.

As readers of Greenspan's
Bubbles

know, he left a remarkable record of back-sightedness. His odes
to technology drew a delirious public under the big top. On March
6, 2000, he told a star-struck audience: "[T]he essential contribution
of information technology is the expansion of knowledge and its
obverse, the reduction of uncertainty. Before the quantum jump in
information availability, most business decisions were made in a
fog of uncertainty." The Federal Reserve chairman received
a standing ovation. Less than two years later, after befogged technology
investors had lost a few trillion dollars, he told a different audience:
"[A]las, technology has not allowed us to see into the future
any more clearly than we could previously."

As stock prices rose in the late-1990s, Greenspan
led his audiences to believe the Federal Reserve would calm the
waters (if not part them). For instance, in February 1997: "[R]egrettably,
history is strewn with new eras that, in the end, have proven to
be a mirage…. [C]aution seems especially warranted with regard to
the sharp rise in equity prices during the past two years." Two years later, when the stock market bubble had engulfed
the nation, Greenspan told a Congressional committee: "[B]ubbles
generally are perceptible only after the fact…. Betting against
markets is usually precarious at best." With that, the circus
animals bid stocks to the moon, knowing the Federal Reserve was
party to the greatest snow job on earth.

In 2004, the Federal Reserve chairman juggled and
rode his unicycle for a different crowd: "Many homeowners might
have saved tens of thousands of dollars had they held adjustable-rate
mortgages rather than fixed-rate mortgages over the past decade."
Only a fairground barker could make this statement in the same week
it was announced that house prices had risen 17% over the past year
in San Diego County, 29% in Los Angeles County, and 28% in New York.
Just as his "can't see, can't speak policy" fed the chimpanzees
in 1999, the circus act spurred the interest-only mortgage market.
This was often the only affordable mortgage, meaning, the owner
could make the first monthly payment but not necessarily the second.
In California, the percentage of interest-only mortgages had risen
from 2% in 2002 to 47% at the time Greenspan spoke. By the fall
of 2004, 67% of California residential mortgages were interest-only.
(The median residential real estate price in California rose from
$262,000 in 2001, to $316,000 in 2002, to $450,000 in 2004, and
to $542,000 in 2005.)

His
dialogue alone might resurrect screwball comedy, if only it wasn't
real. Alan Greenspan is still famous, but the adoration has waned.
His clown act worked when he threw candy and fireworks above the
crowd. The masses have eaten the candy and are suffering shellfire.
He is no longer an icon. Deities do not scramble for approval. Gods
do not attract such headlines as: "Don't Blame Me!" (Sunday
Times of London). Alan Greenspan wants respect. We do not respect
gods; we worship them. We respect certain people, when they are
deserving. Greenspan told us in early April of this year: "I
have no regrets on any of the Federal Reserve policies that we initiated
back then because I think they were very professionally done."
That the votes were properly tallied is not in question; the accomplishments
of the ersatz economist are the enigma. He wrote articles, "some
of them for publications such as Business Economics, which
would not have met the scholarly standards for most economics departments."
(Jeff Madrick, New York Review of Books, July 19, 2001.)
He shambled through his Ph.D. thesis, composed of articles described
by Madrick. He used Townsend-Greenspan as a platform to court the
rich and the professional layabouts. It is too late to establish
himself as a comprehensive economist; he made a different choice
fifty years ago.

In 2004, John Kenneth Galbraith described the Federal
Reserve's painless decisions made "in a pleasant, unobtrusive
building in the nation's capital" as not of "the real
world but to that of hope and imagination. Here our most implausible
and most cherished escape from reality" is led by "an
informed, confident and respected figure of no slight theatrical
talent." When we are prepared to assess the end of this age
honestly, here rests a truthful epitaph for Alan Greenspan and the
Federal Reserve System.

This is a longer version of that published in
Whiskey & Gunpowder.

May
17, 2008

Frederick
Sheehan [send him mail]
is the co-author with William Fleckenstein of Greenspan's
Bubbles
, McGraw-Hill, 2008.

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