Gold News

Roll Up! Roll Up!

The greatest clowns in art, economics and monetary policy...


IT IS SAID THAT
artists speak for the ages, writes Fred Sheehan – author of Greenspan's Bubbles: The Age of Ignorance with Bill Fleckenstein – for Whiskey & Gunpowder...

In 1951, Pablo Picasso thus 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 lay-abouts, 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."


Alan Greenspan: Public Clown, Fairground Barker

The quotation is disputed. But whatever he said, Picasso's reputation suffered no harm when this confession was published.

On 21 February 2008, the Financial Times published the same confession from Han de Jong, chief economist at ABN Amro, the Dutch bank just bought by the UK's Royal Bank of Scotland for :

"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, as his career shows.


Alan Greenspan: This is Not a Pipe

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' own trademark. Picasso might explain that Greenspan was Rene Magritte's subject in the surrealist's famous painting of a pipe.

Under the pipe, Magritte wrote "Ceci n'est pas une pipe..."

"This is not a pipe..."

Greenspan understood he was not smoking a pipe; he was building a career. He knew the forgone parchment from Columbia University was insubstantial compared to climbing the greasy pole under Burns's tutelage.

Greenspan may have observed another 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.  his would achieve extended prosperity.

The Russians were catching up. Growth at any cost was gaining traction. And for such advice, which could only warm a politician's heart, Fortune magazine dubbed Slichter the "father of inflation".

By the late-1950s, Greenspan was proprietor of Townsend-Greenspan, an economic consulting firm. He headed President Ford's Council of Economic Advisers (CEA) 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 as 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.


Alan Greenspan: Courting the Press

In August 1977, Elvis Presley died. The nation mourned. But 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 PhD in economics from N.Y.U. It can be said of Alan Greenspan, with little exaggeration that "He doesn't know anything about economics. In his line you don't have to."

Greenspan's line was fame. He followed the most direct route, dating 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 'the famous economist'..."

Greenspan became Federal Reserve chairman in 1987 and served until January 2006. He continued his fame game throughout. Fewer than 10% of Americans knew the name of the Federal Reserve chairman in 1979. By 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..."

Greenspan played a deity, an icon – Zeus, Moses, God...all descriptions made by 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 6 March 2000, he told a star-struck audience: "The 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:

"Alas, technology has not allowed us to see into the future any more clearly than we could previously."

His dialogue alone might resurrect screwball comedy, if only it wasn't for 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 shellshock. He is no longer an icon. Deities do not scramble for approval. Gods do not attract such headlines as: "Don't Blame Me!" (Financial Times and Sunday Times of London).

But Alan Greenspan wants respect – and we do not respect gods. We worship them.

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.

Author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, and co-author with hedge-fund manager and MSN Money columnist William Fleckenstein of Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve, Frederick Sheehan was a director at John Hancock Financial Services, where he wrote the Market Outlook and Market Review. A CFA and graduate of Columbia Business School, he contributes to Marc Faber's Gloom, Boom & Doom Report amongst others, and also advises an investment firm and a non-profit foundation. You can read his articles and blog, and buy his books, at AuContrarian.com.

See the full archive of Fred Sheehan.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals