19 “Soft-Sell Charm,” BusinessWeek, April 28, 1975, p. 2.
20 Ibid.
21 Ibid.
22 Richard H. Rovere, “Letter from Washington,” New Yorker, November 4, 1974, p. 170.
23 “Soft-Sell Charm.”
24 Ibid.
Confirmation of his skills flowed from all quarters. Richard Cheney was President Ford’s chief of staff. He claimed that the president attached “more weight to Greenspan’s views than to those of any other among his economic advisers.”25 Yet the public record calls Greenspan’s skills as an economist into question. On September 5, 1974, the day after he was sworn in as CEA chairman, Greenspan announced: “We are not about to get a dramatic decrease in economic activity.”26 With this knowledge, he urged President Ford to propose a tax surcharge—an effort to halt inflation. This was exactly the wrong time for such a tactic (which was passed into legislation). The economy contracted 5.8 percent from mid1975 though.27 (It probably goes without saying that raising taxes for any reason was anti-Randian.)
In April of 1975, at the time BusinessWeek’s glowing profile was published, Greenspan pronounced to a New York audience that the worst was yet to come, when, in fact, the worst had passed.28 According to the National Bureau of Economic Research, the recession ended in March of 1975.
Taking together Greenspan’s January 7, 1973, advice that “[i]t’s very rare that you can be as unqualifiedly bullish as you can now” (stated four days before the stock market commenced its 46 percent plunge) and his prediction that the worst was yet to come in April 1975 (when it had ended during his shuttle flight to New York), his public declarations validate the opinions of his former (and future) clients who found him so unenlightening.
In the fall of 1974, Greenspan was involved in the “Whip Inflation Now” marketing campaign. Participants wore WIN buttons to battle a foe that had already, at least temporarily, diminished as the leading economic problem.29 (Consumer price inflation fell 90 percent from the fourth quarter of 1974 to the first quarter of 1975.30)
In the spring of 1975 Greenspan backed a tax cut. The man who pontificated against government’s ability to adjust economic policy had now proposed both a tax increase and a decrease within six months—to calibrate the economy. If Ayn Rand was watching, she may have thought she was back in the country from which she had escaped—the Soviet Union.
25 Joseph Kraft, “Right, for Ford,” New York Times Magazine, April 25, 1976.
26 Ibid.
27Ibid., growth rate of 5.8 percent from David E. Runkle, “Revisionist History: How Data Revisions Distort Economic Policy Research,” Federal Reserve Bank of Minneapolis Quarterly Review, Fall 1998, pp. 3–12.
28 Kraft, “Right, for Ford.”
29 In his autobiography, Greenspan claims the WIN Compaign was “unbelievably stupid.” This was a surprise to some who remember a highly engaged CEA adviser.
30 Ibbotson Associates, Stocks, Bonds, Bills and Inflation, 2000 Yearbook, Market Results for 1926–1999, 2000, p. 226, Table A-15.
In 1975, BusinessWeek noted that “Greenspan has a reputation for being able to get along with just about everybody, including those with whom he may have serious differences.… This combination of charm and solid analytical skill” has given Greenspan the ability to capture “the ear [and possibly] the mind of the President.”31 L. William Seidman, a senior aide to Ford when he was vice president, may have understood the strange dynamic best—that Greenspan was aloof yet cordial: “He has the best bedside manner I’ve ever seen. He’s very non-confrontational, but also very good at persuading people. Part of his mystique, I think, is he’s hard to understand, but that also gives him a certain genius aspect.”32 Seidman interviewed Greenspan prior to the CEA offer: “He assured me he was pure economist and not politician. It turned out he was a better politician than any of us thought.”33
Greenspan in Hollywood
In a lengthy New York Times profile, Joseph Kraft described a typical day in the life of a CEA chairman: “He spends about as much time in the White House as he does in his council offices, once acknowledging that even swearing-in affairs at the White House were useful because they provided one a chance to be close to the President.”34 And a chance to impress new members of the administration with his integrity, charm, and brains.
By the 1970s, politics and publicity were merging. Washington drifted toward the rhetoric of Hollywood. People magazine was launched in 1974 and immediately poached Time magazine’s readers. This was no surprise to the latter. People was published by Time Inc. as a spin-off from the “People” page in Time. The parent company pledged to “[get] back to the people who are causing the news and who are caught up in it, or deserve to be in it. Our focus is on people, not issues.”35 Participants in national issues understood that their public image was becoming as important as—maybe more important than—the policies themselves. A drawing of Secretary of State Henry Kissinger on the April 1, 1974, cover of Time is laid out under the title: “How Henry Does It.” The very first paragraph in the cover story notes that he had “the unmistakable aura of a true celebrity” when recently in Moscow. Time noted, “Arab sheiks [are] fascinated … by the machismo image of his well-publicized dates with actresses Jill St. John and Marlo Thomas.”36 Subscribers to Time may have wondered if they received the wrong magazine.
31 “Soft-Sell Charm”.
32 John Cassidy, “The Fountainhead,” New Yorker, April 24, 2000, p. 173.
33 Ibid., p. 172. Seidman was later head of the Federal Deposit Insurance Corporation and the Resolution Trust Company, and was a commentator on CNBC.
Greenspan’s “bedside manner” went a long way in fulfilling his successful tenure at the CEA. Washington politics is chock-full of egotists, exhibitionists, dramatists, and ladder climbers. To most such domineering characters, the CEA chairman’s demeanor looked inauspicious. Joseph Kraft wrote: “Everyone who has worked with Greenspan seems struck by his lack of ego, his unconcern with machismo, his disposition to emphasize his subject more than himself. Precisely because of his lack of pretension, hardly anyone has any difficulties working with him.”37
Precisely because he appeared beneath competition, Greenspan successfully controlled situations that were well outside the CEA’s authority. For example, he worked wonders in coordinating the administration’s 1975 grain deal with the Soviet Union. The departments of State, Treasury, and Agriculture were the responsible parties. Secretaries Henry Kissinger (State), William Simon (Treasury) and Earl Butz (Agriculture) were strong-willed men. Nevertheless, Greenspan maneuvered himself into a negotiating role, and the Soviet grain deal of 1975 was struck: “[A] far better one than the 1972 agreement, which drove prices up.”38 This, at least, was the opinion Alan Greenspan stated to the New York Times; according to the Times, Greenspan took no credit for himself.39
35 Time, March 1974.
36“Superstar Statecraft: How Henry Does It,” Time, April 1, 1974.
37 Kraft, “Right, for Ford.”
38 Ibid.
39 Ibid.
Magazine Covers and the Party Circuit
In 1975, Greenspan shone from the front cover of Newsweek, the first time an economist was thus celebrated. Other 1975 honorees included Jimmy Hoffa, Patty Hearst—and Henry Kissinger.40 The publicity industry hounded Greenspan. Autograph seekers mailed him copies of the magazine to sign. (He obliged.) Penthouse asked for an interview. (He declined.)41
When he was not evading Penthouse, the chairman hit the party circuit. It appears this was difficult for him. The Washington Post social columnist labeled him a “social creeper”: he “creeps through the most densely populated islands of a room saying, ‘Pardon.’”42 Whatever embarrassment Greenspan may have suffered, he persevered, and he might have echoed Cary Grant’s self-analysis: “I pretended to be somebody I wanted to be and I finally became that person. Or he became me. Or we met at some point.” Despite his hesitancy, he did the right thing and dated Barbara Walters, the television hoste
ss to the good and the great. This gave him cachet in the social columns. He would later date Susan Mills in the 1980s, a producer for the MacNeil-Lehrer Newshour, and then married Andrea Mitchell, a political correspondent on NBC television.
After Ford lost the 1976 presidential race to Jimmy Carter, Greenspan wasted no time getting out of Washington. He caught the noon shuttle back to New York the day of President Carter’s inauguration.
40 Martin, Greenspan, p. 127. 41 Ibid.
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5
The 1980 Presidential Election: Boosting Carter, Reagan, and Kennedy
1976–1980
Alan Greenspan, the economist, has asserted that the translation of homeownership equity into cash available for consumer spending is perhaps the most significant reason why the economy in 1975-1978 was consistently stronger than expected.1
—New York Times, February 17, 1980
As Jimmy Carter delivered his inauguration address in 1977, Greenspan resumed his publicity campaign. He also received his Ph.D. in economics from New York University in 1977. He did so under the tutelage of his former classmate, Bob Kavesh, who was now a professor at NYU. Greenspan’s dissertation was peculiar. According to Jeff Madrick, writing in the New York Review of Books: “[H]e did not complete a conventional dissertation. Instead, he submitted published articles and other writings, some of them for publications such as Business Economics, which would not have met the scholarly standards for most economic
1John H. Allan, “Thrift Adrift: Why Nobody Saves,” New York Times, February 17, 1980, p. 4.
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departments.”2 Traditionally, scholarship is available to the public; however, NYU has not released Greenspan’s work.3
The Ph.D. might or might not have aided his consulting business, but Greenspan knew it would be an asset if he were to be considered for a senior government position—such as Federal Reserve chairman. His personal relations with the press and with members of the Ford administration gave him an insider’s edge, and he understood the value of constant publicity. Thus, he hired the Harry Walker Agency to line up speaking engagements. Greenspan spoke roughly once a week, for compensation ranging from $10,000 to $40,000.4 This is an impressive fee, even today. Greenspan received glowing tributes from the press. One reason for this was his courtship: an editor of BusinessWeek complimented the overworked economist by saying, “No matter what he was doing, you could get him instantly.”5
On August 16, 1977, a momentous event occurred that attested to the farsightedness of Greenspan’s non-academic route to the top of his profession. Elvis Presley died. His passing caused a national ruckus. Many believed it was a hoax; some still do. “Elvis sightings” were reported by the thousands. Long before he died, Elvis ceased to exist as a person and was reincarnated into a transcendent symbol. “Elvis imitators” stumbled through their acts across America to susceptible and lachrymose audiences. They couldn’t sing like Elvis but that didn’t matter. This new industry embodied the image of Elvis. Likewise, the capabilities of Alan Greenspan as an economist were now transcendent; they were above examination by the press or public. He now played the role of Alan Greenspan, celebrity economist. He would never relinquish that perch.
Greenspan reassumed his position inside the womb of the press as a member of Time magazine’s Board of Economists. The group included familiar names: Otto Eckstein, Beryl Sprinkel, Murray Weidenbaum, Walter Heller, and Arthur Okun.6 This was not a roll call of enlightenment. Since the solution to overindulgence was politically unpalatable, economists ignored the explosion in the fireplace and instead swatted the flies on the mantelpiece.
2 Jeff Madrick, “Mr. Fixit,” New York Review of Books, 48, no. 12, July 19, 2001.
3 Justin Martin, Greenspan: The Man behind Money (Cambridge, Mass.: Perseus, 2000), p. 138. See also: Jeff Madrick, “Mr. Fixit.”
4 Ibid., pp. 139, 276.
5 Ibid.
Charles Schultze was President Carter’s chairman of the Counsel of Economic Advisers. Schultze had been director of the Bureau of the Budget during the Johnson administration. He was now on furlough from the Brookings Institution. Time reckoned that Schultze should steer away from the mistakes that Herbert Stein had made during his tenure at the CEA. (Stein had preceded Greenspan as chairman.) Stein “arouse[d] suspicion that politics was warping his professional judgment.” The magazine offered Schultze a role model: “Alan Greenspan restored the CEA’s professional respectability largely by staying out of the public eye and talking primarily to President Ford.”7 Greenspan’s self-effacement proved so counterintuitive that his brand of personal publicity was continually mistaken for an absence of it.
An interview with the New York Times in April 1977 served to integrate the returning consultant to his hometown. Leonard Silk asked if, after “the intimate and influential relationship” he enjoyed with President Ford, Greenspan suffered “decompression pains on his return to New York.” The former public servant responded, “Surprisingly few.… I haven’t fundamentally changed what I am doing.” This was true—the reader may not have appreciated how true.
Greenspan went on to contrast himself with former Ford aides who might find themselves adrift: “Of course, if power interests you, you would miss the change.… [M]y professional work interests me more.”8 He went on to tell Silk his initial belief that for the CEA chairman, avoiding public exposure was an error: “It is essential not to go completely underground.… I ought to join regular White House briefings, for sheer technical reasons.”9 Silk apparently did not ask for what technical reasons Greenspan found that “even swearing-in affairs at the White House were useful because they provided one a chance to be close to the President.”10
6 “Prescriptions for a Drastic Program,” Time, February 21, 1977. Others were Paul McCracken, chairman of the Counsel of Economic Advisers under Nixon; Robert Nathan; and Joseph Pechman.
7 “A Starring Role for the CEA?” Time, February 7, 1977.
8 Leonard Silk, “Greenspan, White House Days Behind, Picks Up as Before” New York Times, April 28, 1977.
The Carter Years: An Economy in Decline
The Carter presidency may have done more to further Alan Greenspan’s rise than all his weekly speeches and exposure in Time. Carter was encumbered by policies that the best minds had instituted earlier in the decade. The break from the gold standard unleashed economic theories that had scrimmaged on college blackboards for decades. With currencies no longer fixed to the price of gold, economic theory claimed that the United States needed to devalue the dollar to compete with overseas producers. The consequent cheaper dollar—in theory—would make U.S. products less expensive abroad.
The dreary result may be summed up by reviewing the relative fortunes of domestic and foreign car producers across the decade: the Carter administration bailed Chrysler out of a looming bankruptcy. By 1980, 25 percent of auto sales in the United States were imports.11 In 1950, only 500,000 automobiles were produced outside of the country and 4,000,000 in the United States.12
The central problem that Carter faced was inflation. The Carter administration aggravated the situation with larger spending deficits and a determination to shield Americans from the consequences of higher prices—when the only solution was to expose Americans to the reckoning for past misdeeds. Government spending and bank credit continued to expand, delaying the insolvencies of unviable businesses. The budget deficit reached $59 billion in 1977.13
9 Ibid.
10 Joseph Kraft, “Right, for Ford,” New York Times Magazine, April 25, 1976. 11 The Eighties Club, Chapter 5 “Car Wars”; http://eightiesclub.tripod.com/id291.htm. 12 John Lukacs, Outgrowing Democracy: A History of the United States in the Twentieth
Century (Garden City, N.Y.: Doubleday, 1984), p. 110.
13White House Office of Management and Budget, Fiscal Year Budget Data, October 15,
2008.
Americans had learned that to stay ahead, or at least keep up, one borrowed
to buy and paid later. Inflation passed 16 percent in 1979. The house-swapping frenzy of the 1970s was a precursor to the postmillennium escapade. Despite mortgage rates more than double anything in the past, residential real estate boomed. By 1979, the housing market was a national obsession. House prices had risen 8 percent or more every year since 1970. Prices were up 17.7 percent in the first nine months of 1979—from $50,200 to $57,200.14 In 1972, membership in the National Association of Realtors first passed 100,000, and it surpassed 435,000 in 1975 (which included a merger with independent salespeople); by 1979, 761,000 Americans were selling houses.15
And what did Alan Greenspan make of all this? In the New York Times, Greenspan worried that “[p]eople no longer think a mortgage is just something to take out to buy a home. It can be a means of cashing in on your gains.”16 Between 1975 and 1978, home mortgage debt rose from $479 billion to $737 billion—a 53 percent rise. Consumer borrowing rose by 60 percent during the same period.17
The American middle class showed signs of fatigue and instability: the higher incidences of drug use, divorce, and single-parent homes were emblematic. A 1979 reading test showed that the reading ability of American college students at the better universities was beneath those of 1928.18 Teachers and students were remiss. Jacques Barzun wrote “Occupational Disease: Verbal Inflation” in 1978: “How did the public school get to such a pass? The answer is: inflation—not monetary inflation, but intellectual, emotional, social, egotistical inflation. For the last fifty years American Education … has lived by continual exaggeration of what it is for and what it can do … Read the top-heavy curriculum plans, the twelve objectives, the twenty-three guidelines, and bring to mind the fraudulent slogans with which the profession has gargled during the last two generations.”19 Exaggeration, abstractions, and empty vocabulary whirred through the markets: three decades later, investment managers and trading desks monitored screens while their computers exchanged securities, programmed to trade when certain words and phrases were spoken (or, more likely, shouted) on CNBC, the television network that turned investing into a football game. Alan Greenspan was the prime beneficiary of a time in which empty vocabulary was considered brilliant.
Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession Page 7
