Dear Dr Greenspan,
Thank you so much for your sincere and elegant autobiography, or rather your autobiography that shows you to be so elegant and sincere.
Having studied Economics I had read a lot about you and drawn a number of conclusions, some of them perhaps not altogether savoury due to idealistic bias. Reading your book has taught me how often we project onto prominent characters those problems we find most dissatisfying. How easy to put the world’s problems down to a Greenspan or a Bush rather than seek how we could better them ourselves. As a young man, this is a lesson I’m slow to learn.
Reading your book was an eye opener. I was inspired by your life, your industry and integrity. I remember when you received an Honorary PhD from Edinburgh University – the university at which I studied - you compared the good economist to Sherlock Holmes, hunting for as many clues as you can but drawing no firmer conclusions than that which the evidence presents. It was inspiring to read that this was the method of your own economic research.
I also found that we treat prominent figures as if they have just stepped out from behind a curtain, into the glare of public spotlight, rather than grant them the respect of people in their position, having worked hard to get there and doing the best they can under the circumstances. Reading your book has given me a deeper respect for public people as they operate in their positions – although I don’t discount that a certain amount of guile and sharpness of elbows has helped to get them there.
In this context, it was interesting to see how ideology often melted away in the context of the situation. While you no doubt have strong principles about how the world should be run, these were often secondary to your analysis of the situation. The public debate would have it that having a Republican or Democrat in office is most important but when faced with decisions it seems to be character that is most instructive.
My own economic thinking has nothing of the erudition or practical experience of yours – a four year undergraduate degree and a lay interest in public affairs – but I would like to pick you up on a few points in your book – chiefly because they touch on problems I have been thinking about for some time.
Firstly, your devotion to the market principle. From what I understand, markets are exceptional traders of information. That a cement works in Kazakhstan can attract finance from New York or London is a testament to this efficiency and of obvious material benefit to both the financiers and workers in Kazakhstan. However, the quality of information and the way it is transformed into action owes a great deal to the institutions that govern, control and surround the market. You point to this when looking at Russia. If the pursuit of material interest contravenes what we believe to be human it makes sense to calm it and align it accordingly.
In a globalised world these contraventions are more often carried out through ignorance rather than deliberate malfeasance further increasing the need for strong and credible institutions all over the world.
Regulation can be thought of as presenting to the market information it would not otherwise admit. Whether laws, taxes or regulatory authorities such measures are essential to humanise market forces which are far stronger than the social or political structures they prevail upon (I’m thinking now of large corporations and financiers with respect to small, newly formed states).
As a student I was most profoundly influenced by Karl Polanyi, a Hungarian who lived in Vienna and then London before becoming a teacher of General Economic History at Colombia University (forgive me if I’m insulting your intelligence with this detail). The brilliance of Polanyi was that he understood the dynamic interplay between economy and society. In fact, he saw that you really could not separate the two – one runs along the lines of the other in differing orders of ascendency. He described the economy as becoming disembedded from society. Whereas before it had run along social and political lines, the rise of the market meant that the economy was being run for its own sake and the needs of people – such as the self-esteem you so rightly point to – were put in second place.
This no doubt was the purpose of the Enlightenment thinkers. They saw society as such a constraining factor and, as anyone who attends family reunions knows, social ties are just such a blessing and a curse. They constrain creativity and ingenuity, but also support it.
What is clear is that people need buffers between themselves and economic disturbance. Economic forces worldwide are now so great that the socialist ideas of keeping the economy fixed to protect society no longer apply. That argument has surely been won.
But what if there was a way to protect people in a dynamic way. That funds be diverted to protect populations and allow them to create their own defences. I’m talking here about community initiatives - that space and infrastructure be allocated to allow communities to better flourish. Just as the market allows entrepreneurs to receive great rewards, so is infrastructure created to allow space for social entrepreneurs. It would be a way for society to strengthen itself through its own ingenuity and not top down, centralised systems, developed far from their centres of impact.
The economy running at the expense of society is like an engine running on petrol and no oil and in Anglo economies I fear we’re seeing precisely that – economic strength is bought at the expense of societal degradation. Keynes recognised this clearly but his solutions were so of their time that I do not think they are readily applicable today.
For developing economies the situation is worse. Economic forces generated in foreign countries and able to be contained by those countries institutions, land on foreign soil where institutions are under-adapted. The result, as you recognise, is social dislocation at a pace that does not justify the economic rewards it brings, or certainly not in such a short time frame.
For this reason I disagree with your assertion that freeing markets makes economic sense. In the long run it promotes societal collapse, which tempts greater strictures on economic freedom. Indeed, writing in 1944, Karl Polanyi attributed the rise of fascism to the unconstrained market forces of the 19th century.
If legislation and taxes can be used to slow the pace of economic development in order that society has time to adapt, then it should do so.
I would be most grateful of you saw fit to answer this letter; I hope you have found it interesting. There may be numerous positions attributed to you that are not actually your, but such are the limitations of a letter. Once again, thank you for your book, it stimulated discussions in me that have remained dormant for some time.
With very best regards,
The Fluffy Economist
This letter appears as part of the forthcoming series Letters to Important Men, currently available online.