Alan Greenspan on the Dunning–Kruger Effect
Did I write The Dunning–Kruger effect?
I mean “Activism.”
You see, Mr. “1%.FOMC.Rates-Nonfeasance-banks.can.self.regulate-its.called.innovation-Greenspan.Put,” had the unmitigated gall, the colossal cojones, the planet sized testicles to blame the current slow recovery on Government Intervention!
Given how utterly unaware the former Fed Chairman is of his own gross incompetentcies, I thought if I used the actual, title no one would believe me.
Alan Greenspan on Activism
Abstract: The US recovery from the 2008 financial and economic crisis has been disappointingly tepid. What is most notable in sifting through the variables that might conceivably account for the lacklustre rebound in GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment. As a share of corporate liquid cash flow, it is at its lowest level since 1940. This contrasts starkly with the robust recovery in the markets for liquid corporate securities. What, then, accounts for this exceptionally elevated level of illiquidity aversion? I break down the broad potential sources, and analyse them with standard regression techniques. I infer that a minimum of half and possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers, deriving from the surge in government activism. This explanation is buttressed by comparison with similar conundrums experienced during the 1930s. I conclude that the current government activism is hampering what should be a broad-based robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.
Perhaps Messrs Dunning and Kruger would not mind if we renamed their research the Alan Greenspan Effect?
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Source: PDF
Greenspan on Activism
Council on Foreign Relations
http://www.cfr.org/thinktank/cgs/
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March 19th, 2011 at 5:55 pm
So, BR are you sayin that 2 or 3 trillion in monopoly money has nothing to do with it? And if not, what?
March 19th, 2011 at 5:56 pm
No.
What I am saying is that I find it ironic bordering on hilarious that the one Human Being who probably shoulders the greatest responsibility for the financial crisis not only is wholly unaware of that, but still does not get the crisis, its causes or net results.
Greenie should go read This Time Its Different by Reinhart & Rogoff — they use a wealth of statistical data to make very clear the what post-leverage credit crisis recoveries look like . . .
March 19th, 2011 at 6:11 pm
Let me refer Alan Greenspan to a book “The Greenspan Bubbles, the Age of Ignorance at the Federal Reserve” (Bill Fleckenstein, 2010)…it recounts in details how we got here and here we will remain until someone with brains is appointed to the Federal Reserve, anything less than a damned fool sits at the Treasury and people of intelligence are elected to Congress…yeah, fat chance of any of that happening…God what a mess and now we shoot Tomahawk missiles at Libya…more money uselessly down a rat hole ….that is muslims killing muslims….ask me if I give a tinkers damn…
March 19th, 2011 at 6:19 pm
True dat!
Fleck, who wrote “Greenspan Bubbles,” is the guy who wrote the Introduction to my book, Bailout Nation
March 19th, 2011 at 6:26 pm
You forgot “Galactic Ego” in your list ;)
Oh Barry, did you really think that this man, at the end of his useful life, was going to turn around and say that everything he believed in, everything he said, everything he did, was utter catastrophic garbage? Do you expect people like this to have some sort of “come to Jesus” moment? No way! Like the people who believe the earth is 6000 years old, he’ll keep defending what he did even in the face of incontrovertible evidence because to do anything else is to admit that his life was a failure.
There are very few people who, in the shades of later life, have the sack to admit that their pet theories were wrong. They usually go to the grave thinking they were right. And you know, like Max Planck said, science advances one funeral at a time. General economics will when Greenspan finally shuffles off his mortal coil.
March 19th, 2011 at 6:45 pm
I think Greenspan is right:
“possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers”
Think how much more willing corporations would be to invest all their cash and all they could borrow if they knew that future Fed Reserve and Treasury bailouts would cover 100% of losses for 100% of for-profit corporations (so sorry all you pension funds that lost money).
Letting Lehman Brothers collapse for doing nothing more than taking stupid risks with borrowed money was a shocking example of government activism at its worst. Who can blame corporations for accumulating cash or paying dividends instead of investing to expand operations?
Some might try to convince you that corporations aren’t investing, because capacity utilization is low and consumer debt and un/underemployment is hurting demand. That argument destroys itself, for it is a clear admission that government activists are threatening to force corporations to absorb the downside of risk instead of just skimming the upside.
If only we had an administration willing to have a bold and brilliant mind like Greenspan’s in charge of the Federal Reserve, we’d see endless prosperity and forget the meaning of words like “recession” and “deficit”.
March 19th, 2011 at 7:46 pm
Greenspan deserves to finish his days on this planet in a little hut in Northern Maine, living on 10$ per day.
I despise this guy so much…and his wife is not much better as a human being; always willing to afflict the afflicted and comfort the comfortable, which is the definition of an American Beltway journalist nowadays.
March 19th, 2011 at 7:53 pm
Francois–you mean Henry David Thoreau-ly discredited? Nice renaming, Mr. Ritholtz.
March 19th, 2011 at 8:03 pm
I come to a different conclusion than Greenspan (which is reassuring, because Greenspan has been wrong about just about everything). The problem lies in the middle class (or formerly middle class) consumers in the US. Their house is underwater, their 401K shot, their good paying jobs have been sent to the far east, and gas and food prices are climbing. Raise your hand if you honestly think these people are sitting on their wallets because there’s too much regulation??
March 19th, 2011 at 8:21 pm
There is a whole list of folks at the CFR that are in need of Kevorkian’s Kool-aid to put them out of our misery !!
March 19th, 2011 at 8:56 pm
Pretty funny how he brings up the 1930′s. Not having the Fed and a stable banking system exacerbated/caused all the old banking panics and the long depression. The Fed was introduced, not utilized properly and that did not prevent the great depression. Then the government tries to address all the issues that got them into that mess. Guess what, having someone who believes in laissez-faire in their heart running the fed, paired with wall st. money influencing legislation in washington makes for a period of not utilizing the fed properly and not having a stable economic environment. History repeats. We get the financial turmoil of our times. Now we are trying to address all the issues that got us into this mess. But Greenspan would much rather enter into another bubble and not address the real flaws of our economy.
March 19th, 2011 at 10:07 pm
This man is no longer relevant. Pay him no mind and, with luck, he will just go away. As to the Council on Foreign Relations, it is a “think tank” which should not be confused with an academic institution. They are, like all think tanks, grant whores who got some monies from the vampire squid or some other non-conflicted party to get an objective analysis from from an ideological broken record repeating failed policies and discredited theories. Angelina Jolie, who is also a member of the CFR, could have done a better job.
March 20th, 2011 at 1:29 am
“I conclude that the current government activism is hampering what should be a broad-based robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.”
Can there be any further question the value Greenspan, and subsequently Bernanke, “put” on a rising stock market?
Whores, the both of them…
March 20th, 2011 at 2:42 am
Heh heh, heh heh… he said “buttressed”… heh heh
March 20th, 2011 at 7:20 am
“Our” so-called money, defended at every chance by the corrupt government:
http://cryptogon.com/?p=21312
March 20th, 2011 at 8:52 am
The lack of growth is as always due to a lack of consumption. GDP is 70% consumption + a few minor other things that don’t count for much in the bigger picture (and are indirectly dependent on consumption). During Greenspan’s housing bubble the consumers borrowed future GDP (consumption money) out of their houses and on the blind faith (and fraudulent securitisation) of banks. After the bust they are no longer able to do that, and even worse many are stuck having to pay back all that borrowed GDP growth. So if we want growth we need to find a sustainable wealth distribution model that ensure a healthy spending consumer class that can actually afford all the self-indulgent crap that businesses want them to purchase. The reason businesses are not investing and expanding is that there are no customers for the end products and in moderns economy you do not produce on hope and faith. You could say excuse the old clown not is getting it because of his old age, but unfortunately he didn’t get either back when he was younger – ITS THE CONSUMER STUPID (that would be loud enough that he could hear it but probably not loud enough that he could understand it). I mean just look at the formula for GDP – what part of third grade math do you have a problem with, Al ?
March 20th, 2011 at 9:06 am
Someone pretty smart once told me:
“Science progresses in part because the older generations, clinging to their perspectives, die out – not because scientists are convinced by the evidence at hand. It’s like you work to get a piece of knowledge and that piece of knowledge becomes your tool, rather than the acquisition of knowledge being your tool.”
It is easy to see a fit between this view and Greenspan….and a few others.
March 20th, 2011 at 9:40 am
…the asshole just needs to go away
March 20th, 2011 at 10:37 am
While we are on the subject, it was the great Ronald Reagan who fired Paul Volcker and appointed the wiley protege of Ayn Rand to the throne. Just so you don’t forget.
March 20th, 2011 at 12:17 pm
re: CFR= ‘Think Tank’ , We may do well to wonder..
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=CFR+Trilateral+Commission+Government+Takeover
http://www.cfr.org/about/membership/roster.html
http://www.trilateral.org/go.cfm?do=Page.View&pid=6
note Date: August 14, 2007 at 06:03 pm
http://www.nowpublic.com/obama-cfr
to begin with..
March 20th, 2011 at 1:08 pm
Louiswi, we are also in the midst of Mr. Obama hiring Volcker and then not listening to a word he says.
Why isn’t Volcker given actual power.
Because that would upset Wall Street expectations?
As per Greenspan, with the current level of debt, there’s no way the US government can do afford another bailout of Wall Street. Next time They Collapse, and we collapse with them. Doesn’t Greenspan get this?
March 20th, 2011 at 4:29 pm
Steve C,
Absolutely right.
Not a word from Greenspan about the effect of tens of thousands of factories and millions of jobs sent offshore.
Or the effects of ZIRP on millions of savers whose hard earned CD money yields 1% instead of 6%.
Jim Rino,
I admire Volcker but it is way past the point where a 14% 30 year T bond will do anything but hasten the collapse.
TPTB know the game is almost up, they are just busy positioning themselves to be in control of everything worth owning so that no matter what currency you denominate their assets in, they come out on top.
March 20th, 2011 at 4:33 pm
@ louiswi, holy moley. Why has no one pointed that out before?
March 21st, 2011 at 8:08 am
Where did he learn to write like that? Seriously, where did he go to school? Show of hands. please….. Does anybody know anybody in their circle of friends, relatives, or colleagues who writes like that? It’s just so difficult to comprehend.
March 21st, 2011 at 10:52 am
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