|Panderer to Power
The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession
By Frederick Sheehan
HC, 400 pgs. US$29.95
Not quite a bull's-eye
By Daniel M. Ryan
Each year, we see more evidence that muckraking is changing. Back in the olden days, it was straightforward: single out an individual or group of individuals, hold up their flaws while glossing over or ignoring their virtues or genuine talents, intimate that the only way they ever became successful was because they were nefarious and/or corrupt. Some left it at that; others ended with a call to do something about it. Unsurprisingly, many of the best muckrakers were journalists, as accurate history became a secondary requirement. The high point of American muckraking began more than a century ago and climaxed in the 1930s, to the point where revisionist historian Maury Klein has made a distinguished career for himself by telling us what really went on in the so-called Robber Baron era.
Yes, there's a commonality between muckraking and banking. Both start off cautious until land-office time comes, at which point both overreach. Just as bankers slowly turn into speculators, muckrakers turn into myth peddlers.
The old style of muckraker is still around. Now that it's easier to hold government officials culpable, though, a new breed has emerged. That breed is libertarian, or at least is libertarian-influenced. Libertarians come into their own when politico-economic conditions approximate the ones that prevailed when libertarianism was classical liberalism: mercantilism, both domestic and external. A mercantilist economy is one of co-operation between large government and established business interests. On the political side, the co-operativeness is a tool of statecraft. The business interests brought into the tent represent, or are, important constituencies. Moreover, many of them are needed aides in implementing governmental economic policy. In our age, mercantilism has come about because government officials have learned – the hard way – that bureaucratic disinterest leads to rote thinking and cookie-cutter implementation. Bureaucracies are inflexible and static; that's how they were designed to be. They have the power of the government in their hands. When this fact is added, "inflexible" and "static" look more like "predictable" and "stable." One of the hard lessons the twentieth century has taught us is that dynamic and flexible bureaucracies end up acting tyrannically. It's too tempting, when you can pack someone off to jail for simply crossing you, to do so.
Once the limits of in-house economic policy were discovered, government officials turned to outsourcing. Harnessing "market forces" is now one of the standard tools of statecraft. Just as kings long ago discovered that economic policy works better when the business-minded are bought on board, modern politicians have discovered the same thing. Resultant venality and corruption are now seen as a price to be paid for better and/or more non-threatening economic management. It should be little surprise that mercantilism is another name for crony capitalism. It's too tempting to see things your own way a little, for anyone.
The morphing from bureaucratism to mercantilism explains why the core of the libertarian movement seems implacable despite libertarians winning a great victory over socialism – and why it's much easier for a libertarian to be a populist nowadays. Back in the 1960s, the only one holding the banner was Murray N. Rothbard. Now, there are quite a few.
One of them is Frederick Sheehan, author of a critical biography of Alan Greenspan entitled Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession. Like Richard Duncan, another muckraker focused on the financial industry, Sheehan thinks the best central banker in modern times was William McChesney Martin, Jr. Both authors share a framework that might end up elevated to an outright legend: the Fed's Arcadian summer was under Martin, but was corrupted by the too-eager-to-serve Arthur Burns. Then along came the pliable G. William Miller, who was eased out because inflation went too far even for the D.C. potentates. An Indian summer was ushered in by Paul Volcker, who was the closest answer to Martin for our times. Since then, it's been the draining fall of Fed pandering to political goals. Even though we've had an icy blast these past two years, the winter has yet to arrive.
If Sheehan's book has to be summed up in a single sentence, it would be that he presents Greenspan as shallow and a slick operator; 'Greenspeak' covers both up. . Not much time is spent with Greenspan's early life, but Sheehan goes out of his way to highlight Ayn Rand's first impression of him when they met: "'Do you think Alan might basically be a social climber?'" (p. 9.) This quote serves as a leitmotif of the book as Sheehan digs into Greenspan's later life. He decided that the other Greenspan – the man who hitched his wagon to Arthur Burns's star early on – was the real Greenspan. The impression he conveys is that Greenspan wasn't even much of an Objectivist, although Sheehan doesn't intimate that Greenspan was drawn into Rand's inner circle out of a desire to rub shoulders with a popular novelist. He presents Greenspan as a man who did believe in Rand's philosophy in his own way, but shed it while ascending the socio-political heights. Like many libertarian critics of Greenspan, Sheehan brandishes "Gold And Economic Freedom" as a reproach – even if he holds his nose a little while doing so.
Sheehan buys into the categorization of Alan Greenspan as the "man who's always wrong." He did manage to dig up a fair bit of bloopers, such as Greenspan's outspoken bullishness in early 1973 (p. 43.) However, this part of the book requires a certain suspension of disbelief (or common-sensicality.) People who are always wrong don't rise up; the ones who are but have and use powerful friends tend to be put into ceremonial positions or sinecures. Ones who go on to the real inner circle have to be right sometime because they have to deliver when in there. To his credit, Sheehan came up with two right calls: Greenspan's 1962 bearishness just before the market cracked (p. 25) and his 1966 warnings about the U.S. government's deficit (p. 29.). Since it was hard to find bearishness that's wasn't sourpussedness at the time, Greenspan's well-reasoned and timely calls won him some renown.
Greenspan's response to the crash of '87 – which made him as a central banker – isn't discussed much in Sheehan's book. That's because it's the event that least fits into a critical narrative of Greenspan's life, particularly a populist one. In order to take credit away from Greenspan and the Fed, one would have to assign credit to…derivatives, for compressing the bulk of an entire bear market in a single day. No populist is going to do that!
However, Greenspan's overall record is sufficiently spotty to give lots of grist to Sheehan. The book is quite readable and packs a fair bit of Fed history in with the gossip. The reader does learn a lot about a time when the U.S. economy and banking system was undergoing a transformation.
Sheehan's own biases are Schiff-like. Sound money is good; inflation is bad. Industrial productivity is good; a finance-driven economy isn't. Concentration in the banking sector is bad because it necessitates the too-big-to-fail rule that constructively rewards recklessness. Repealing the remnants of the Glass-Steagall separation between commercial and investment banking wasn't such a good idea. And yes, Washington insiders nowadays – particularly, Greenspan – are too far removed from everyday life to know what's really going on, even when they should. Greenspan's interpretation of free-market economics is presented as largely a product of Greenspan's cluelessness about how financial markets and institutions really function.
His criticism of Greenspan's blandness, although he makes some important points, hangs itself at the end of the book. It's evident from the text, although Sheehan doesn't point it out explicitly, that Greenspan became more cautious after being scolded by Phil Gramm and others for his warnings about a stock-market bubble in late '96 and '97. Saying that Greenspan should have stuck to his guns in late '98 by deflating the bubble, despite the panic over the Long-Term Capital Management blowup, is one thing. Holding Greenspan up to William McChesney Martin's standard is another thing. The political influence of the Fed – its visibility as well as its clout – has grown tremendously over the last forty years. In Martin's day, monetary policy was the mere handmaiden of fiscal policy. In Greenspan's day, monetary policy was much more counted on…and was much more of a political football. (Both are even truer today.) Given that few people knew who he was, and what the Fed was, Martin's steadfastedness could be pegged as that of a pipsqueak by the Washington insiders of his time. In Greenspan's time, it would have been seen as a real challenge – one that, when crunch time came, Congress would win.
Sheehan does take Greenspan to task for withdrawing into his shell after 1998, as a good critical biographer should. The trouble is, Sheehan also rebukes Greenspan for being too outspoken after he retired (pp. 327-8; pp. 341-2.) Critical he is, but he breaks the suspension of disbelief in doing so. The reader is left to wonder: "If Alan Greenspan causes panics when he's candid, doesn't that explain why he was so mealy-mouthed and accommodative when he was Fed chair?"
That inconsistency detracts from its critical value, but does not detract from the book's real value: it's well-researched and based in facts. It also provides a good lesson of Greenspan's times as well as his life. At the very least, it's a good capsule history of the financial crises that have beset the banking system since the early 1980s.
Thankfully, the bull market in libertarianesque muckraking is in its early stages. These muckrakers pay close attention to the facts and are disinclined to exaggerate. Sheehan's has both these virtues, which makes Panderer To Power of some value.
Daniel M. Ryan is currently watching The Gold Bubble.
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