The End Of An Era Of Ideology - Greenspan's Mea Culpa And Its Profound Implications For The Future Of Governance And Economics.
"Convictions (ideology or doctrine) are more dangerous enemies of truth than lies." -- Friedrich Nietzsche
I wanted to get this video up while it was still relatively fresh. There is really no limit on the timeliness of this post as the implications are long term anyway. The video itself is only relevant if you didn't see Greenspan's Congressional testimony a few months ago. It simply provides context for the rest of the post.
If Alan Greenspan is guilty of anything, it is his unwavering support for deregulation and lack of regulation where none existed - something we have pointed to as his legacy. That lack of regulation or misguided policy extends well beyond the obvious and well beyond financial markets. Substantially well beyond. Every aspect of the American economy has been profoundly impacted.
Hopefully you now see beyond the nonsense that this global crisis is primarily because Greenspan lowered interest rates in 2000 below where many believe they should have been. This remains a very popular cause for this crisis cited by many including a few Nobel Prize winning economists. Given not a single Nobel Prize winning economist anticipated this global environment, need I say more? It's similar to another nonsense that this global crisis is because of U.S. subprime mortgages. Can anyone still say with a straight face that a global economy with a ten year run rate of $600 trillion is literally collapsing because we saw American companies write $800 billion in subprime mortgages? Please. Subprime mortgage debt amounts to less than one half of one percent of all global debt. Even with the addition of Alt-A mortgages, it's still a ridiculous position. The global economy, were it actually based on sound fundamentals, would absorb any subprime mess like an after dinner mint.
How would a trained economist understand the market is repudiating his or her study? It's quite simple. Only by observing it. Comparably, it would be as if everything I studied about engineering or mathematics or physics was wrong. How would I know this? Well, the most obvious way would again be by observing it. In other words, your computer wouldn't work. The electricity in your house wouldn't work. The internet wouldn't work. Medical equipment in the hospital wouldn't work. How do economists realize modern economics is an abject failure? Well, this is the insanity of it all - the global economy falls off of a cliff and doesn't return to potential. And, that is exactly what is going to happen. In other words, the credit crunch will eventually be realized to be a much broader systemic economic crisis - that all of the generally accepted economic principals no longer work. So goes the process of learning. Much of our economic policies on completely unproven ideology or doctrine.
To say that policy in Washington was influenced by Greenspan's ideology may be the understatement of the century. An entire generation's belief systems were significantly impacted by Greenspan ideology. The market this. The market that. The market knows best. The market. The market. The market. Ultimately the market does weigh in but it does so in esoteric ways not generally understood by Wall Street or economists as opposed to generally accepted economics perspective that correlation always equals causation. To be fair, Greenspan was not the originator of this modern day brainwashing. Nor is it confined to the United States. It has infiltrated and destroyed minds around the world. Indeed, "convictions are more dangerous enemies of truth........."
When Greenspan testified before Congress late last year, (video above) all he could muster in his own defense was what he observed supported his ideology. And, now he believes his observations appeared to be wrong. Therein lies the problem with economics or, more appropriately, much of pseudo science based on observation. Often observation of a data set too small to accurately validate anything other than what the observer wants to believe. In other words, ideology. Many observational methods are a basis for crackpot science I have railed against on here. I was astounded by the naked ignorance of Greenspan's faulty logic during his testimony. I am not talking figuratively either. Ignorance in the scientific sense. We would have been substantially better served with a third year philosophy of logic student giving economic policy advice to Washington. For, what we ended up with was someone using a Ouija board to divine our economic path. (I apologize in advance to those who use Ouija boards. I do realize your predictive success rate is substantially higher than that of the mainstream economics community.)
Greenspan's mea culpa has extremely profound implications that cannot be overstated. They are enormous. Entire political careers, philosophies of markets, economics, college curriculum and government were built around beliefs that have now been abandoned, even if sheepishly, by one of its prime advocates. Might I add, the abandonment is going to spread beyond regulation of financial markets and in time the entire American economy will achieve a new level of enlightenment.
The earth will move beneath the Republican party because of this. And, that means the earth will move beneath Washington. We are now entering a transformational period of some unknown time frame. That's a very positive development that cannot happen quickly enough. In the coming years or decades Republican ideology on markets and economics will once again shift and embrace new standard bearers. But, first the party needs to wander in the desert while they engage intellectual discourse to reformulate their strategy. What will that strategy be? It will be something they can sell to the American people. How bad is that? It's called listening to your customer. This is nothing new. We have seen political parties transform themselves time and again when their beliefs are exposed as either outright ignorance, unpopular, or as in this case untrue. The significant irony here is if I were to cite many of the Lincoln Republican economic principles from long ago, you might believe I was citing the President-elect. And, indeed he has pointed that out. An example of two positions Lincoln supported are one, collective bargaining by workers is absolutely necessary and two, trade liberalization must be based on ideals that protect the wages of American workers. Two beliefs that have been completely abandoned by the current ideology of the Republican party, the Democratic party, Wall Street and the economics community. Yet there is not a Republican in Washington who wouldn't want to be first in line to be recognized as a Lincoln Republican. Or for that matter any Democrat either. My point? Beliefs are far from truth and run in cycles. So, those adamantly and inflexibly supporting current beliefs eventually end up on the wrong side of the debate because their positions are dogmatic rather than enlightened or truth seeking. Amazingly though, dogma is often defended to the death. In fact, what could be more dogmatic than radical hypernationalism we see developing throughout the world today. This type of indoctrination has led to the death of hundreds of millions of people throughout time and there is no reason to believe it won't lead to hundreds of millions of more deaths in the future.
Similarly, the current Democratic ideologists seem to believe society has achieved enlightenment by sweeping them into power. This is based on a completely fallacious argument of your position is wrong, therefore mine is right. Where the argument is binary that may be so. Come talk to me when you can distill economic ideology down to two states. Democrats too will have their own awakening soon enough for much of their beliefs could very well sink the American economy even more so than the mistakes leading up to this crisis. Amongst other things this includes reckless spending (shared by both parties) without understanding the consequences and increased government meddling and involvement in markets as a solution to this crisis. (Not to be confused with necessary and sufficient regulation.)
The real question is what mindset will win out in Washington over the next four years. Will it be the destructive and equally fallacious ideology of the leadership in the Democratic Congress? Or will we get true change? Not Democratic change or Republican change but a change away from the failed partisan ideology we have witnessed from both parties over the last half century.
I still marvel at the remnants of this most current ideological position that the market knows best. A market-based economy is the best economic model but that in no way translates into the simpleton statement that the market knows best. The market might know best if we had free markets but we have never had nor will we ever have free markets. We strive for fair markets. There is a radical difference. You don't use the same thinking to get out of a problem that you used to get into it. And, the market knows best has been the prevailing ideology for decades. The ideology leading to the collapse of the global economy. Needless to say, I have a beef with some of these simpletons who read an introductory Austrian economics book and believe they have the answer to all of the world's economic problems - let everything collapse and the system will recover beautifully. In between being absorbed by the first grade math behind these positions, they might have taken a break to study nonlinearity, chaos theory or complex systems theory. Or, for that matter, the historical context of the notion of simpleton beliefs. Were we to let the markets decide the first to go would be the financial idiots generally behind this propaganda message more affectionately known as the Big Lie. Why? Because if left to its own devices, the market knows pushing paper around provides no sustainable economic value in any society.
Here is the true reality. The economy is a massively complex system as defined in a scientific sense. The unintended consequences, unintended reactions and unknown variables are well too complicated for any one human to comprehend when the system experiences massive shocks that we see today. Allowing greater and greater chaos in the economy creates larger and larger disturbances that can only be framed as heading down the rabbit hole to see how deep it goes. In other words, no one can accurately quantify risk or its scope. Does anyone really want to go there if we have even a remote possibility of stopping it? We might not find our way out for a long time and many will most assuredly never find their way out. As a point of reference, we are likely at the mouth of the rabbit hole as I type this. Are you really sure the market knows best? Is there undeniable scientific evidence to back it up? Because there is incontrovertible scientific evidence to back up my remarks that the economy can be destabilized beyond anyone's imagination by letting the markets determine our fate. In other words those quoting Mises or Schumpeter to support an ideology that the market should decide are bastardizing scholarly work for foolish dogmatic positions without understanding the limits and spirit of these great men. Additionally, these dogmatics have no answers to solve any problems other than the intellectually shallow let the markets decide position. Let the walls come caving down.
What I am saying is those advocating we should just let the markets decide are suffering from a bout of extreme ignorance. They really don't know what they don't know. And, someone who is confident of what they don't know most surely has the potential to create greater chaos achieved through the ideology of stupidity. The larger the scale of impact for such ignorance, the greater the potential devastation. What do I mean by that? I mean the ignorance of Alan Greenspan and politicians has global scale and reach. Therefore, they hold the potential for the creation of substantially greater devastation through their actions. Of course, you will have to look in the rear view mirror to do that analysis because what you see before you is the outcome of their ignorance.
There is no critical thought in a statement so mindlessly simple as let the market decide. In this environment it is akin to accepting a future that is predetermined. It is defeat without even trying. It stands in stark contrast to the great human ability to rise to the occasion and meet crisis with its best and brightest ideas and innovations. And, for that, society should listen? This is one reason why I completely discount ideological positions. They are based on shallow thought processes. They lack the depth and complexity of reality and truth. And, by conclusion of this reality what did the market teach us about current economic ideology? The market repudiated its ignorant and intellectually shallow positions. So, now is a time to repudiate the ideologues and embrace those willing to engage in critical thought and intellectual discourse as we attempt to solve current crises.
I wanted to get this video up while it was still relatively fresh. There is really no limit on the timeliness of this post as the implications are long term anyway. The video itself is only relevant if you didn't see Greenspan's Congressional testimony a few months ago. It simply provides context for the rest of the post.
If Alan Greenspan is guilty of anything, it is his unwavering support for deregulation and lack of regulation where none existed - something we have pointed to as his legacy. That lack of regulation or misguided policy extends well beyond the obvious and well beyond financial markets. Substantially well beyond. Every aspect of the American economy has been profoundly impacted.
Hopefully you now see beyond the nonsense that this global crisis is primarily because Greenspan lowered interest rates in 2000 below where many believe they should have been. This remains a very popular cause for this crisis cited by many including a few Nobel Prize winning economists. Given not a single Nobel Prize winning economist anticipated this global environment, need I say more? It's similar to another nonsense that this global crisis is because of U.S. subprime mortgages. Can anyone still say with a straight face that a global economy with a ten year run rate of $600 trillion is literally collapsing because we saw American companies write $800 billion in subprime mortgages? Please. Subprime mortgage debt amounts to less than one half of one percent of all global debt. Even with the addition of Alt-A mortgages, it's still a ridiculous position. The global economy, were it actually based on sound fundamentals, would absorb any subprime mess like an after dinner mint.
How would a trained economist understand the market is repudiating his or her study? It's quite simple. Only by observing it. Comparably, it would be as if everything I studied about engineering or mathematics or physics was wrong. How would I know this? Well, the most obvious way would again be by observing it. In other words, your computer wouldn't work. The electricity in your house wouldn't work. The internet wouldn't work. Medical equipment in the hospital wouldn't work. How do economists realize modern economics is an abject failure? Well, this is the insanity of it all - the global economy falls off of a cliff and doesn't return to potential. And, that is exactly what is going to happen. In other words, the credit crunch will eventually be realized to be a much broader systemic economic crisis - that all of the generally accepted economic principals no longer work. So goes the process of learning. Much of our economic policies on completely unproven ideology or doctrine.
To say that policy in Washington was influenced by Greenspan's ideology may be the understatement of the century. An entire generation's belief systems were significantly impacted by Greenspan ideology. The market this. The market that. The market knows best. The market. The market. The market. Ultimately the market does weigh in but it does so in esoteric ways not generally understood by Wall Street or economists as opposed to generally accepted economics perspective that correlation always equals causation. To be fair, Greenspan was not the originator of this modern day brainwashing. Nor is it confined to the United States. It has infiltrated and destroyed minds around the world. Indeed, "convictions are more dangerous enemies of truth........."
When Greenspan testified before Congress late last year, (video above) all he could muster in his own defense was what he observed supported his ideology. And, now he believes his observations appeared to be wrong. Therein lies the problem with economics or, more appropriately, much of pseudo science based on observation. Often observation of a data set too small to accurately validate anything other than what the observer wants to believe. In other words, ideology. Many observational methods are a basis for crackpot science I have railed against on here. I was astounded by the naked ignorance of Greenspan's faulty logic during his testimony. I am not talking figuratively either. Ignorance in the scientific sense. We would have been substantially better served with a third year philosophy of logic student giving economic policy advice to Washington. For, what we ended up with was someone using a Ouija board to divine our economic path. (I apologize in advance to those who use Ouija boards. I do realize your predictive success rate is substantially higher than that of the mainstream economics community.)
Greenspan's mea culpa has extremely profound implications that cannot be overstated. They are enormous. Entire political careers, philosophies of markets, economics, college curriculum and government were built around beliefs that have now been abandoned, even if sheepishly, by one of its prime advocates. Might I add, the abandonment is going to spread beyond regulation of financial markets and in time the entire American economy will achieve a new level of enlightenment.
The earth will move beneath the Republican party because of this. And, that means the earth will move beneath Washington. We are now entering a transformational period of some unknown time frame. That's a very positive development that cannot happen quickly enough. In the coming years or decades Republican ideology on markets and economics will once again shift and embrace new standard bearers. But, first the party needs to wander in the desert while they engage intellectual discourse to reformulate their strategy. What will that strategy be? It will be something they can sell to the American people. How bad is that? It's called listening to your customer. This is nothing new. We have seen political parties transform themselves time and again when their beliefs are exposed as either outright ignorance, unpopular, or as in this case untrue. The significant irony here is if I were to cite many of the Lincoln Republican economic principles from long ago, you might believe I was citing the President-elect. And, indeed he has pointed that out. An example of two positions Lincoln supported are one, collective bargaining by workers is absolutely necessary and two, trade liberalization must be based on ideals that protect the wages of American workers. Two beliefs that have been completely abandoned by the current ideology of the Republican party, the Democratic party, Wall Street and the economics community. Yet there is not a Republican in Washington who wouldn't want to be first in line to be recognized as a Lincoln Republican. Or for that matter any Democrat either. My point? Beliefs are far from truth and run in cycles. So, those adamantly and inflexibly supporting current beliefs eventually end up on the wrong side of the debate because their positions are dogmatic rather than enlightened or truth seeking. Amazingly though, dogma is often defended to the death. In fact, what could be more dogmatic than radical hypernationalism we see developing throughout the world today. This type of indoctrination has led to the death of hundreds of millions of people throughout time and there is no reason to believe it won't lead to hundreds of millions of more deaths in the future.
Similarly, the current Democratic ideologists seem to believe society has achieved enlightenment by sweeping them into power. This is based on a completely fallacious argument of your position is wrong, therefore mine is right. Where the argument is binary that may be so. Come talk to me when you can distill economic ideology down to two states. Democrats too will have their own awakening soon enough for much of their beliefs could very well sink the American economy even more so than the mistakes leading up to this crisis. Amongst other things this includes reckless spending (shared by both parties) without understanding the consequences and increased government meddling and involvement in markets as a solution to this crisis. (Not to be confused with necessary and sufficient regulation.)
The real question is what mindset will win out in Washington over the next four years. Will it be the destructive and equally fallacious ideology of the leadership in the Democratic Congress? Or will we get true change? Not Democratic change or Republican change but a change away from the failed partisan ideology we have witnessed from both parties over the last half century.
I still marvel at the remnants of this most current ideological position that the market knows best. A market-based economy is the best economic model but that in no way translates into the simpleton statement that the market knows best. The market might know best if we had free markets but we have never had nor will we ever have free markets. We strive for fair markets. There is a radical difference. You don't use the same thinking to get out of a problem that you used to get into it. And, the market knows best has been the prevailing ideology for decades. The ideology leading to the collapse of the global economy. Needless to say, I have a beef with some of these simpletons who read an introductory Austrian economics book and believe they have the answer to all of the world's economic problems - let everything collapse and the system will recover beautifully. In between being absorbed by the first grade math behind these positions, they might have taken a break to study nonlinearity, chaos theory or complex systems theory. Or, for that matter, the historical context of the notion of simpleton beliefs. Were we to let the markets decide the first to go would be the financial idiots generally behind this propaganda message more affectionately known as the Big Lie. Why? Because if left to its own devices, the market knows pushing paper around provides no sustainable economic value in any society.
Here is the true reality. The economy is a massively complex system as defined in a scientific sense. The unintended consequences, unintended reactions and unknown variables are well too complicated for any one human to comprehend when the system experiences massive shocks that we see today. Allowing greater and greater chaos in the economy creates larger and larger disturbances that can only be framed as heading down the rabbit hole to see how deep it goes. In other words, no one can accurately quantify risk or its scope. Does anyone really want to go there if we have even a remote possibility of stopping it? We might not find our way out for a long time and many will most assuredly never find their way out. As a point of reference, we are likely at the mouth of the rabbit hole as I type this. Are you really sure the market knows best? Is there undeniable scientific evidence to back it up? Because there is incontrovertible scientific evidence to back up my remarks that the economy can be destabilized beyond anyone's imagination by letting the markets determine our fate. In other words those quoting Mises or Schumpeter to support an ideology that the market should decide are bastardizing scholarly work for foolish dogmatic positions without understanding the limits and spirit of these great men. Additionally, these dogmatics have no answers to solve any problems other than the intellectually shallow let the markets decide position. Let the walls come caving down.
What I am saying is those advocating we should just let the markets decide are suffering from a bout of extreme ignorance. They really don't know what they don't know. And, someone who is confident of what they don't know most surely has the potential to create greater chaos achieved through the ideology of stupidity. The larger the scale of impact for such ignorance, the greater the potential devastation. What do I mean by that? I mean the ignorance of Alan Greenspan and politicians has global scale and reach. Therefore, they hold the potential for the creation of substantially greater devastation through their actions. Of course, you will have to look in the rear view mirror to do that analysis because what you see before you is the outcome of their ignorance.
There is no critical thought in a statement so mindlessly simple as let the market decide. In this environment it is akin to accepting a future that is predetermined. It is defeat without even trying. It stands in stark contrast to the great human ability to rise to the occasion and meet crisis with its best and brightest ideas and innovations. And, for that, society should listen? This is one reason why I completely discount ideological positions. They are based on shallow thought processes. They lack the depth and complexity of reality and truth. And, by conclusion of this reality what did the market teach us about current economic ideology? The market repudiated its ignorant and intellectually shallow positions. So, now is a time to repudiate the ideologues and embrace those willing to engage in critical thought and intellectual discourse as we attempt to solve current crises.
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