Alan Greenspan was a great friend and admirer of Ayn Rand and contributed to publications such as "Capitalism: The Unknown Ideal". He may not have been an Objectivist but I believe he was deeply influenced by Objectivism. He constantly espoused deregulation as a worthy goal and seemed (at least initially) to be trying to create a more "laissez faire" economy. After the global financial collapse, Alan seemed to backtrack. I quote from the Wikipedia page:
In a Congressional hearing on October 23, 2008, Greenspan admitted that his free-market` ideology shunning certain regulations was flawed. `` However, when asked about free markets and Rand's ideas in an interview on April 4, 2010, Greenspan clarified his stance on laissez faire capitalism and asserted that in a democratic society there could be no better alternative. He stated that the errors that were made stemmed not from the principle, but from the application of competitive markets in "assuming what the nature of risks would be."
I don't really understand what that means? It sounds awfully like the religious argument that says that religion is great, it's just its application that's flawed. If the deregulation so clearly led to people choosing short term chicanery and fraud to make a quick buck (many, many people certainly did), is it really so great? Why? Do you want to live through that much tumult? The laissez faire theory on self-correcting markets seems to have this inherent weakness in that there are huge swings and lurches as the markets "correct". As a wag on a blog put it:
Ultimately, the markets would have corrected. Granted, the world would have been in chaos and millions of people might have died while hundreds of millions or even billions were thrown into abject poverty, but had we left the finance industry alone, it would have self-corrected.
The problem with self-correction is not that it would not happen; it’s that it is often messy and unpleasant. Ultimately, the Mongols ceased to control most of Asia. The demographics self-corrected. The people who had boards nailed to them so that they could be used as benches probably never got to enjoy that correction.
If a 100% laissez faire economy results in "unlpeasant" and "messy" wild shifts and gyrations, why would anyone support it?
asked Aug 16 '12 at 20:43
The line of thinking expressed in this question (whether the questioner consciously intended it or not) seeks to undermine capitalism by constraining the discussion to narrow economic issues -- at the expense of the bigger and more fundamental issue of capitalism's morality and the unspeakable evil of initiating physical force against others. The question either does not comprehend, or does not want readers to comprehend, what a "regulated economy" actually is. "Regulation" means that somewhere (and probably pervasively) there are willing producers and willing buyers ready to engage in trade, but they are stopped from doing so by physical force. A regulated economy means loss of freedom -- infringement of individual rights by governmental force.
Do some observers prefer "security" in lieu of freedom? Do they seek tranquility and "stability" at the expense of their own freedom and the freedom of their victims? By what moral right do they claim the power to do that to others? Why should their victims submit to it willingly? Why shouldn't the victims -- the producers who make such parasitism possible -- refuse to submit? Why shouldn't they go on strike in protest, as did the producers in Atlas Shrugged? If they were to "walk out," what would happen to all the others then?
Freedom means that if you don't trust the judgment of another person, you don't have to deal with him. Freedom means that if you find someone you do trust, you are free to deal with him. Freedom means that if you seek to benefit in part by the judgment of a willing trading partner, and the partner turns out to be mistaken and ends up losing instead of gaining, dragging you down with him (to the extent of your investment in his judgment), it is your risk (barring fraud). You made an investment, just as your trading partner did, and your investment went bad. Do you want all such investments to come under governmental pre-review and be prohibited by governmental force if some government bureaucrat or committee decides that it's too risky -- by some standard of risk other than your own? Do you want permission to act to be delayed for months or years while governmental committees (and pressure groups) discuss and debate ad nauseum? Why do you think the government would be any better than private entrepreneurs at producing goods and services and mitigating risks of investment? Government only stops investors and holds them back; it can't replace them. Government only destroys values (or destroys the destroyers, as in retaliatory force). Government doesn't create values.
Objectivism advocates laissez faire capitalism, not because capitalism provides "the greatest good for the greatest number," nor because many people may prefer security and "regulation" over freedom and personal responsibility for their choices -- but because Objectivism advocates freedom of action and the protection of individual rights to think, to act on one's thinking, to produce and trade. The mechanism of a free market is unleashed as a result -- with enormously positive consequences for the prosperity and happiness of all who choose to participate in it, usually with vastly greater "upside potential" than "downside risk."
No one should be fooled or misled by distractions such as Alan Greenspan. He seemed to understand the nature and moral status of capitalism during his years of association with Ayn Rand. He drifted away during his tenure in government, as indicated briefly by his 2008 remarks noted in the question. His role in upholding Social Security was particularly disturbing to those who understand where it will inevitably lead. He may have tried to soften his departure in later remarks in 2010, but as the question notes, his rhetoric was little more than empty "image boosting." He became very good at that during his time in government, perfecting the use of empty but erudite-sounding rhetoric to a fine art. He popularized expressions like "infectious greed" and "irrational exuberance," for example. He seems to have done it again (more humbly so) in his 2010 remarks.
Nor should anyone be fooled or misled by token deregulation (or lack of greater regulation) in a mixed economy. The calamities of a mixed economy cannot be blamed on the mechanism of a free market, which is inherently prevented from functioning to counteract the distortions promulgated by a regulated economy that tries to mix freedom and controls. It's an inherently unstable, untenable mixture, especially over time.
Why would anyone support laissez faire capitalism, the question asks, if it doesn't protect one from one's own mistakes and the mistakes of any others upon whom one chose to depend? I answer: because capitalism is the system of individual rights and freedom for all, and that is the realistic path to prosperity and happiness.
The case for capitalism is as strong economically as it is morally. Ayn Rand went to great effort to study the actual history of capitalism, and she published her conclusions in her book, Capitalism: The Unknown Ideal (CUI). In her earlier 1961 essay, "For the New Intellectual," she discussed the intellectuals and the businessmen and offered the following challenge to both (FNI p. 53 in the Signet paperback edition):
Let them both discover the nature, the theory and the actual history of capitalism; both groups are equally ignorant of it. No other subject is hidden by so many distortions, misconceptions, misrepresentations and falsifications. Let them study the historical facts and discover that all the evils popularly ascribed to capitalism were caused, necessitated and made possible only by government controls imposed on the economy. Whenever they hear capitalism being denounced, let them check the facts and discover which of the two opposite political princples -- free trade or government controls -- was responsible for the alleged iniquities. When they hear it said that capitalism has had its chance and has failed, let them remember that what ultimately failed was a "mixed" economy, that the controls were the cause of the failure, and that the way to save a country is not by making it swallow a full, "unmixed" glass of the poison which is killing it.
In the case of the 2008 "home mortgage meltdown," such a study would look closely, for example, at all the ways lenders were subjected to intense pressure by Congress and the President to make home loans available to under-qualified, high-risk borrowers at artificially low interest rates -- and how lenders reacted as best they could to mitigate their risks. Such a study would look at how what could have been isolated financial losses scattered sporadically throughout the economy became, once again, far bigger losses as a result of governmental meddling. One can point to many cases of individual businessmen acting "irrationally and exuberantly" in the face of such government-caused economic distortions, but such a study would look at all the ways, often subtle but often very overt as well, that governmental force drove it.
Ayn Rand repeated her challenge many times. In "America's Persecuted Minority: Big Business" (CUI Chap. 3) she wrote (p. 48):
All the evils, abuses, and iniquities, popularly ascribed to businessmen and to capitalism, were not caused by an unregulated economy or by a free market, but by government intervention into the economy.
In "Notes on the History of American Free Enterprise" (CUI Chap. 7, p. 102), the opening paragraph explains:
If a detailed, factual study were made of all those instances in the history of American industry which have been used by the statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on businessmen were caused, necessitated, and made possible only by government invervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.
And in "The Intellectual Bankruptcy of Our Age" (VOR Ch. 10, p. 91-92, 1961), Ayn Rand observes:
When two opposite principles are operating in any issue, the scientific approach to their evaluation is to study their respective performances, trace their consequences in full, precise detail, and then pronounce judgment on their respective merits. In the case of a mixed economy, the first duty of any thinker or scholar is to study the historical record and to discover which developments were caused by the free enterprise of private individuals, by free production and trade in a free market -- and which developments were caused by government intervention into the economy [e.g., "by government controls, favors, subsidies, franchises, and special privileges"]. It might shock you to hear that no such study has ever been made. To my knowledge, no book dealing with this issue is available. If one wants to study this question, one has to gather information from random passages and references in books on other subjects, or from the unstated implications of known but unanalyzed facts.
For further overview of Ayn Rand's understanding of the theory and actual history of capitalism, refer also to the topic of "Capitalism" in The Ayn Rand Lexicon. The CUI 102 excerpt above is also excerpted in that Lexicon topic.
Update: Deregulation Myth
There is an entire chapter on the 2008 home mortgage meltdown in Free Market Revolution by Yaron Brook and Don Watkins, published in September 2012 -- Chapter 4. The opening paragraph ends with a reference to a footnote discussing Alan Greenspan's association with Ayn Rand and his subsequent rejection of Objectivism and laissez-faire. The second paragraph of that chapter notes:
... the events leading up to the crisis took place on a market that was anything but free -- a market where, among other things, the government intervened in order to promote "affordable housing."
The chapter goes on to explain this in detail, along with the ways in which lenders reacted in an effort to mitigate their risks from making the bad loans that the U.S. government was goading them into making. Table 4.1 provides a comprehensive timeline of events documenting "The Myth of Financial Deregulation" (pp. 41-42) from 1980 through 2009.