Regulating the Economy

THE OPEN MIND
Host: Richard D. Heffner
Guests: Alan Greenspan
Title: “Regulating the Economy”
VTR: 8/12/83

I’m Richard Heffner, your host on THE OPEN MIND. When I introduced our previous program with today’s guest, I noted that we don’t ask a man his religion in this country as we test him for high places, but perhaps we should ask what it means to him to be a human being, whether he believes that life in a state of nature is nasty, poor, brutish, and short, whether he’s a Lockeian, or a Hobbesian, a Hamiltonian, or a Jeffersonian. In short, we ought to get more inside their heads and find out more aobout the essential ideas of the men and women we pick for high places, and endow with great power. Well, Alan Greenspan is just such a person. One of America’s premier economists, he’s been there at the very pinnacle of government. Chairman of the President’s Council of Economic Advisors. And, as recently as when we recorded our previous program together, the guess was that he might be drafted to the prestigious chairmanship of the Federal Reserve Board. Well, fortunately, I think, this philosophical objectivist, this enthusiast of Ayn Rand, whose novels, The Fountainhead, and Atlas Shrugged, surfaced some decades ago as perhaps the most dramatic and the most romantic statements of laissez faire of an antigovernment posture. Alan Greenspan is still private, rather than public, and we can continue to probe his private thoughts. Welcome back, Dr. Greenspan.

Greenspan: Thank you very much.

Heffner: You know, I watched the recording of our program the other week, and I noted that, as we went along, I asked a question and kept coming back to it. I asked whether we have the resources to support the benefits that government now promises most citizens. And you, in turn, asked, “Who are we? Just who is it who is going to be his and her brothers ‘keeper”? and I wondered if I could get back to the question that I really meant to ask, and that is whether, if we wanted to be, if you and I chose, and all of our colleagues in this country chose, to be our brothers’ keepers, would our resources permit us to be so at the level and on the scale that we are now, or pretend to be?

Greenspan: It’s the basic premise which I have problems with, because of the presumption that, in fact, we can choose to do that. I don’t deny that we can, for a short period of time, endeavor to do that. But I think it’s basically in the nature of human beings to essentially, ultimately revolt against that sort of social organization. You can only do that over a protracted period of time, that is inducing governmentally required self-sacrifice of use of force. In a free society such as ours, I think what is so extraordinary is the fact that you cannot do that, and that we can, as 220 million Americans, live in a remarkable state of freedom, considering that there’s so little of it in the Western world, and in human history. So that, in you asking me as an economist, is it physically possible, certainly. If people choose to do it, it can be done. Do I think it will be done? No. do I think it’s desirable? No, I do not.

Heffner: Interesting. You say, do I ask whether I think you think will be done. You say no. and then you put the words in my mouth, “Do you think it’s desirable”? And you say no. and I think you rush to indicate that you think it is not desirable.

Greenspan: Yes.

Heffner: And I want to ask you about that. But, first, I want to ask you, where is it written that unless there is a gun to our heads we will not be that benevolent a people?

Greenspan: I’m not saying it’s not that we would be benevolent. In fact, I think what is really remarkable about Americans is that they’re extremely generous. In giving things to our neighbors, helping neighbors, our history has always been that. But the problem is you’ve got to be desirous of doing so, and one cannot force benevolence. And i think that what happens, what we’ve seen much too often, is when you try to induce benevolence that is not voluntarily forthcoming, what you get are certain characteristics of human behavior which I think most of us would look at rather negatively.

Heffner: Yes, but when we spoke last time, you put us at the center of this giant circle, and you said we could choose. There is that free will that will enable us to choose – and I would assume to choose to be benevolent or choose to be not so. Now you sound a little more Hobbesian in your philosophy, and that surprises me.

Greenspan: No. I’m not saying that we don’t or are not centrally forthcoming, beneficent, friendly types of people. I’m just saying that, in the context of your first question, which is, can we, in fact, produce the goods that we have, in a sense, committed for in the various programs which are now under law, I was thinking in that context.

Heffner: Right.

Greenspan: Interpreting that question as an economist, and as I look forward into the next generation, what I’m saying is that the amount of commitment that is implicit there, the amount of resources that have to be, in a sense, volunteered by the productive members of society, in my judgment, is far larger than people would tend, granted what we have observed in recent years, to be willing to be forthcoming with. I’m not saying that we, as a people, are not very forthcoming, not very generous, we are. But there is al imit. And I think that what we have arrived at is a point beyond which I think we would find it difficult to go.

Heffner: Well, then I have to ask you where was the line drawn, who drew the line, why do you say there is a limit? What is there that is so fixed about human nature that leads you to say there is a limit to our brotherliness, there is a limit to the degree to which we will be our brothers’ keeper?

Greenspan: It’s essentially a question of observing what human beings are and what they do. And down deep it’s in the very nature of the human species to seek to achieve personal fulfillment and to somehow create a sense of self-esteem and creativeness. Some people I think a relatively few, would find that in basically, essentially sacrificing their lives for others. The vast, vast majority of Americans have indicated, by what it is they choose to do, by how they live their lives, by what they consider important, to be otherwise. I mean, their fundamental thrust, if one can read history and just look around us, is essentially to enhance their family to create goods and services so that their family life will be expanded. They want to see their children get ahead. And, for themselves to get ahead. They want to see things which were personal to them. They don’t wish, as a general rule, to spend their lives volunteering without comparable exchange of values, assisting the lives of people who are not their family, are strangers they may not even know. There are a few people who do that, but i would say one need only observe the human race and find that that is a rare phenomenon. So we do get back, once again, to one’s definition of the nature of human nature. Certainly, in fact, you cannot really discuss or really understand society, or for that matter, even economics, without fundamental propositions relating to the nature of the human species. That’s what it’s all about, that’s what economics is all about.

Heffner: It’s interesting you say that that’s what economics is all about. Would you say then that when there are Cainsians and no-Cainsians, and anti-Cainsians, and when there are those who have accepted monetarism and those who have rejected it, and those who have accepted Reaganomics and those who have rejected it, that basically we’re talking about different conceptions of the nature of human nature?

Greenspan: Sure. More explicitly, how human beings will react, given certain external conditions. Remember that supply side economics specifically stipulates that under certain tax incentives, human beings will respond in a certain way. Cainsians argue that, granted a certain amount of just cash income received, they will spend it, under certain conditions. There’s almost a determinism, in fact, about a lot of these economic propositions. And one can essentially define the differences by how one interprets human response. And that’s a factual question. Economics, hopefully, has got certain scientific characteristics, and whether you’re right or wrong, in a certain proposition is an issue of fact, not some ethereal opinion.

Heffner: Yes, but certainly facts based upon the circumstances in which a people will find itself, and will react differently from another people finding themselves in other circumstances. Or do you have a group of givens that you’d like to lay down as the basis for your economics as well as your philosophy?

Greenspan: No, I think that, certainly, the reactions of people differ from one geographic area to another, from one time to another. But if, in fact, it is wholly different, then I would say there is no profession or science or economics; it’s a wholly random phenomenon. For there to be a body of insights and concepts, there’ve got to be universal propositions which are the same for Americans, for Britons, for those in Nigeria, or for those in the Soviet Union. And there are. In fact, I know of no economic philosophy which the practitioners argue is specifically restricted to say, Allegheny county or the Gulf of Mexico. They presume it as a generic proposition, because human beings, at root, are the same throughout the world.

Heffner: Then, if human beings are, at root, the same, what economic system, what political system, best corresponds to their real nature?

Greenspan: Obviously, since I’m an advocate of laissez faire capitalism, I presume that that’s the correct answer, because if I believed otherwise, it would be a contradiction, in a scientific sense, and I wouldn’t hold it.

Heffner: When did we enjoy laissez faire capitalism?

Greenspan: Never fully, in that sense. But economics is abstractions. In fact, all social science is abstractions. And what we do is endeavor to create as close as we can the theoretical construction, in a very, very complex society, which we hope captures the most important elements in human behavior. Now, there are two issues involved here. One is, what is the ideal society for the maximum production of values which human beings want as individuals, and that, clearly, is what I think is important in free enterprise society which, although we have never seen anything in that abstract sense, the United States is as close as anything we have ever reached. And this country, I think, has had the broadest sense of economic and political freedom. I think that this is a country which one can only appreciate by going elsewhere, or by reading history and finding out how extraordinary this country is. And while, true enough, I would scarcely say that what we have as an economic system is laissez faire capitalism, we do have most of its major elements. And, if anything, we are closer to it today than we were 20 years ago, although I must admit 20 years ago we felt a lot farther from it than we were, say, 50 years earlier.

Heffner: Does that mean you find, basically, a sense of satisfaction in the mix that we have now? You say it’s obviously not pure laissez faire capitalism. By and large, are you willing to stand pat?

Greenspan: N. I would like rather considerable progress because…

Heffner: Which way?

Greenspan: Well, moving more towards that, because…

Heffner: Towards what? We have a mix. Which part of the mix do you want to move towards?

Greenspan: Okay. More towards a free enterprise society and less government. Because, as we discussed at the beginning of the program, I’m, in a sense, arguing that commitments already in place under current law are not capable of being financed in the existing structure. Change it.

Heffner: Without coercion?

Greenspan: Yes. And I think we are changing. I think that it’s very difficult to make these judgments in any definitive way, but clearly the politics of this country are moving more towards solving social, political, economic problems by market solutions rather than government solutions. And that was not the case 20 years ago. So, in that sense, I would think that standing pat is inadequate. But I don’t think we are standing pat. I think we are gradually moving towards solving what I consider to be very serious problems in the political, economic realm.

Heffner: For many people, chronologically, even in terms of what you described before, that means basically moving backwards. Is that a fair statement?

Greenspan: No, I don’t believe so. And I think…remember what the real, basic problem is in this whole area of not only producing the wealth, but making certain that everybody participates in society. The one thing that’s been ever more obvious is that the way to bring everybody up is to bring the totals up. There is just no way that you can, in any free society, try to distribute a static production of static wealth without creating tremendous frictions within the society which undercuts the political freedoms that are involved. And as a consequence of that, i think that, what i think has to be changed is not cutting back where we are now, but, in a sense, slowing the rate of change which is already embodied in current law. In other words, we’ve committed to go farther than I think we realistically should endeavor to go if what we want is as table, growing society in which this country continues to emphasize the freedoms which have been our heritage.

Heffner: I’m a little bit puzzled, because it seems to me I’ve heard, on the one hand, you suggest that we need merely change or modify the rate of change of growth of government obligations, etcetera. On the other hand, I hear you talking about for reaction, but speaking about over commitment as we are now. If we are overcommitted, it’s not adequate then, is it, merely to deaccelerate the rate of change?

Greenspan: Well, the nature of the commitments which i…

Heffner: To social programs and…

Greenspan: Yeah. Is that the current commitments create further growth. In other words, it’s not that they will continue to pick up an increasing share o the national product. What I am saying I, under current law, that’s what’s going to happen. And unless we trim that, in other words, not cut back from where we are, but not continue to go from here to there bur from here to there, because unless we do that, I think we’re in for a period of social disintegration. And, fortunately, one, you know, very broad sense, can read the trend of politics in this country pretty across the full spectrum, there is a very odd consensus. I mean, what we argue about, what we get into tremendous debates about, is really a rather narrow spectrum of politics. If we take European or even our own history’s range of differences, we are rather narrow, strangely, and that’s good.

Heffner: How would you define, though, that range? Narrow as it may be.

Greenspan: Well, I would say that it, in the context of, say, the last 30 or 40 years, I would say that we have moved somewhat to the right, somewhat towards more emphasis on encouraging investment, encouraging production, inducing a broadened private incentive structure. And that is true not only with Republicans, who historically have been committed in that direction, although they are more so now than they used to be, but it’s far more obvious in the Democratic Party, because where there used to be major differences on the issue of incentives, they’re rare now. I find, for example, that most of the problems that exist in a lot of the political debates actually put economists, Republicans, or Democrats on one side, and lawyers, and politicians, Republicans and Democrats on the other. And the divisions are really increasingly narrower.

Heffner: Except that you’re outnumbered.

Greenspan: True enough. However, my view is one thought is worth a lot of people.

Heffner: You know, when we finished our conversation last time, I had the impression, the profound impression, that a conversation like this is not something that occurs or develops in the media very frequently, that usually we shy away from the more fundamental examinations of where we are, who we are. Is that your experience?

Greenspan: Oh, unquestionably yes. It’s gotten to a point where our interests are on day-by-day jockeying about and political debates and current programs. I don’t think we reach back to our intellectual and philosophical roots as much as I think we should.

Heffner: That, in a sense though, contradicts, if I may make the point, this optimism that you have expressed before when you say that over the past, perhaps, generation, there has been a movement amongst Democrats as well as amongst Republicans in this other direction. Now, there has to be a tension between those two phenomena.

Greenspan: what’s doing it is reality, in the sense that it’s fairly obvious to a lot of the people, especially those who are in the forefront of program advocacy, that they really haven’[t, many of the social programs which have been advocated, produced, and put in place over the last two generations have failed. In other words, they have not done what they were supposed to do. And, I must say, what i find very impressive, and I think very encouraging, is that the people in the forefront of admitting that, and advocating change, are those who initiated those programs back then. And when you have people who are sufficiently interested in what is right and what is true, you don’t need to get into deep philosophical issues. What happens is, if reality comes up and hits you in the face, the message is clear, and people are willing to look at it.

Heffner: But, you know, I’ve felt for some time now, and I recognize this movement – I won’t call it movement backward – this movement, to a philosophy that you would embrace more than, perhaps, some other people. The thought has occurred to me that it is something of a failure of nerve. There was such an anticipation, an expectation, let’s say, that the great society was going to be a great society and was going to solve so many problems. Naïve, foolish assumptions, maybe worthy, too, in some ways, but naïve. And that what we’re experiencing is a failure of nerve rather than a philosophical reexamination.

Greenspan: that’s an important question, obviously, because it’s either true or it’s false. It would be true if, in fact, the conceptual framework which set the great society in motion, were in fact correct, and that all the fundamental premises were in place, and that what has happened is that we pulled the plug before they were tested. I happen to believe that that’s false. I think that, in fact, they were tested. It is not a question of los of nerve. It’s a question of program evaluation, strictly and simply, that we have vast numbers of programs – and take, for example, all the job training programs, one after the other, all of which had a fundamental notion about how those programs would interface the labor force, the unemployed, the unskilled, and, in a sense, move a vast number of people who are unemployed and are chronically unemployed into the mainstream of the work force. Now, you cannot argue, by any reasonable notion, that those programs were underfunded, implemented by people who did not basically agree with what the purposes were, or that for some reason it was just inept. I think that they were done well in the sense of strictly administratively, and the endeavor to do them. I think they failed because I think they misread the nature of what the problem was and I think, as the people who instituted those programs also became aware of that, they were in the forefront of pulling them back and trying something different. So, in that sense, I don’t think it is an issue of loss of nerve. It could have been; I happen to think it wasn’t. And it is a question of fact, that either it was or it wasn’t. And it really gets down to the question of whether you conclude that a fair test was involved. In my judgment, it was.

Heffner: We just have a few minutes left, and i want to go back – and I haven’t touched on it in this program – to Ayn Rand and those early philosophical involvements of hers and of yours, which I know have been consistent throughout your life. What fundamentally would be different in government’s approach to, let’s say, race relations if your concept of the proper relationship between the individual and the state were writ larger and you were king?

Greenspan: Well, first of all, in the context of that, that’s a contradiction in terms. You cannot be king to an Ayn Rand philosophy, so to speak. It’s a contradiction.

Heffner: If you had us develop as you would.

Greenspan: Yeah, I would, first of all, I think that all of the extraordinary governmental apparatus which, essentially, for generations, was racist, would be fundamentally towed away long before, in fact, it did in the 50s and 60s. If we had a major expansion in economic activity, which I think probably would be far more on track now than it would, the opportunities for minorities would be far greater than they are today. The reason that minorities move in our society is because it is the people, irrespective of whether they’ve gotten racist psychology, prejudiced or otherwise, they need them. Because when you need somebody to produce goods, you hire them. And i think that what we would find today is far greater integration than in fact I think we do have.

Heffner: You know, you’ve got to come back again so we can go on from there. But our time, believe it or not, is up. Alan Greenspan, thank you so much for joining me today.

Greenspan: Delighted to b with you.

Heffner: And thanks, too, to you in the audience. I hope you, too will join us again here on The Open Mind. Meanwhile, as another old friend used to say, “Good night and good luck.”