One movie, one webcast and one cocktail party later, I feel compelled to refine my previous allegations. Specifically, I’d chided our former Fed Reserve Chairman for using 40 years’ prior experience as an excuse for his scandalous neglect of the U.S. economic system. But, you say, 40 years’ experience sounds like a compelling reason to stay on the same trajectory? To that, I offer up three clarifications:
- The “past performance is not an indicator of future results” truism can be gleaned straight from Statistics 101 (or is that 01?): when you flip a coin, it always has a 50% chance of being tails. Regardless of how many times it turned up tails prior. (brain refresher credit to “Rosencrantz & Guildenstern Are Dead” – fabuuuu kudos to Gary Oldman…sigh….).
- AND: good economists must live by Mark Twain’s wisdom that “history does not repeat itself…but it does rhyme.” That is, while no two economic environments are exactly alike, overarching principles can be gleaned and applied to future conditions. In the current crisis, historical disasters amidst lack of regulation (but 2 examples: in the ’30s up to Black Tuesday; in the ’80s up to the S&L collapse) should have served as instructive examples (Twain quote credit to Schwab SVP Mark Riepe, who is emerging as one of my newer geek heroes).
- I thus underscore my original charge: that Greenspan is a purist to the detriment of the globe. Specifically, his 40-year tryst with Ayn Rand led to a sorely misguided ascent to the unfettered rationalistic, meritocratic nature of humans, thwarting the rest of the world into the cataclysmic consequences of such distorted thinking. (credit to Haas mixer where I blurted this out in verbal form with only afterthought consideration as to whether other Rand-ists were present).
Yes, we have her to thank, too. “Objectivism” is an attractive philosophy not because it is true, but because it plays to our sense of pride. Why else would people eat up McCainistic lauds of “the American people” as being so virtuous when it was these people – not just corporate execs – who contributed to our current economic mess in living beyond their means (one example: embracing “Pick-A-Pay” negative amortization schemes…I mean, “negative amortization”??).
How much more roadkill do we need to accept that, when left to our own devices, we do NOT do the right thing?
Update on 12/11/08: my friend Jim just sent me an article which leads me to believe that Cardinal Ratzinger (aka The Pope) and I are somewhat aligned…
…and while I am not in 100% agreement with the entire article, I did find its assertion that “the market mechanism has a negative but not a positive function. The market cannot decide what innovations or practices are beneficial to society. It can only punish incompetence and inefficiency” to be incredibly thought provoking….I’ll be gnawing on that one for a while….