The following is an excellent excerpt from the book “THE MAN WHO KNEW: The Life and Times of Alan Greenspan” by Sebastian Mallaby from Chapter Eight: “A Minority of One” on page 155 and I quote: “On the morning of August 8, 1974, [Alan] Greenspan appeared before the Senate Banking committee. It was six years to the day since he had watched [Richard] Nixon accept the Republican nomination at the convention in Miami Beach, and he had matured well in the interim. Now past his forty-eighth birthday, he still boasted a full head of dark hair, a strong build, and a strong jaw; he still dressed in the same conservative suits he has worn since the fifties. His youthful belief that he would one day command the world’s respect had been vindicated, amply. Time magazine had recently informed millions of readers that he was “erudite and witty”; and he was earning $300,000 per year–$1.4 million in 2015 money. Yet traces of his boyhood shyness stuck to him, disguising his success behind a mask of modesty.
“Mr. Greenspan, that is quite a battery you have to introduce you,” the committee chairman began. Greenspan was flanked by a congressman on one side and a White House counselor on the other.
“Senator, I have rarely been in the middle of anything,” Greenspan responded, in the self-deprecating manner of a sideman.
Eleven senators looked down on him. They had copies of his curriculum vitae, and they knew this statement to be nonsense. Oddly for a libertarian, Greenspan had emerged at the very center of the nexus between business and government: he now had a string of corporate directorships to his name, and he served as an adviser to the Federal Reserve, the White House budget office, the Treasury, and the Council of Economic Advisers. Far from being a sideman, Greenspan was appearing before the Senate committee as President Nixon’s nominee to one of the three top economic jobs in Washington. He was to chair the White House Council of Economic Advisers, the committee of three eminent economists served by a powerful staff of experts on leave from academia.
Greenspan had hesitated before agreeing to serve a president whose economic policies he had reviled, but his misgivings had been calmed by several considerations. For one thing, Nixon had ended his disastrous experiment with wage and price controls in April, removing the clearest obstacle to Greenspan’s joining the administration. For another, his long-standing hunger for high office remained with him, and the position of CEA chairman was several rungs more senior than anything Greenspan might have been offered at the start of Nixon’s presidency. Finally, although others might have balked at the idea of joining an administration that was coming apart under the impact of the Watergate scandal, Greenspan saw the prospect differently. The nation was entering a dark moment, and Arthur Burns and several leading administration officials had entreated him to help. “This government is paralyzed. But there’s still an economy out there and we still have to make economic policy. You owe it to your country to serve,” Burns had urged him. A month or so later Greenspan told an interviewer, “What is at stake is so large that if anyone has the possibility of making a contribution, he should. It’s one of the rare instances when the issue of patriotism comes up.”
So here was Greenspan on Capitol Hill, ready for what promised to be a gripping confirmation hearing. The news of his nomination had already generated a clutch of newspaper profiles, several of which portrayed him as the leader of a far-out sect. “To the congregation of conservative economists, Greenspan is high priest, and austerity is his faith,” BusinessWeek declared, while Newsweek titled its profile “Fundamental Fountainhead.” The New York Times spiced its coverage with quotes from Ayn Rand. “My impression is that Alan did not want to go to the Council in the first place, and I don’t believe he would stay if he is asked to compromise on his principles,” Rand told the Times. “Inconsistency is a moral crime,” she added, a bit menacingly.
After some introductory pleasantries, the chairman of the banking committee invited Senator William Proxmire to lead the questioning. A wiry ascetic, the author of a book on dieting and exercise, Proxmire was intelligent and strange; modest enough to refuse absolutely all campaign donations, vain enough to invest in hair transplants and a facelift. But Proxmire was, first and foremost, a Wisconsin progressive. He was not going to look kindly on Ayn Rand’s chief economist.
“You said, ‘What the economy badly needs is a strong dose of do-nothingism,'” Proxmire began, accusingly.
“That is correct, Senator.”
“Is that still your view?”
Greenspan assured Proxmire that is was. Do-nothingism was “not a terribly philosophical term,” the nominee apologized. But price controls had been a “shambles.” Greenspan was apparently not going to soft-pedal his free-market views–whether for the senator’s benefit or for the benefit of the president who had nominated him.
Proxmire moved on. His staff had dredged up Greenspan’s Randian claim that antitrust law was unnecessary. Calling Greenspan’s attention to the fact that the Federal Trade Commission blamed price fixing for inflation, the senator suggested that a clampdown on monopolistic practices would take the pressure off prices.
“I would think that the effect on the price level has got to be neglible,” Greenspan objected.
“Neglible?” Proxmire exclaimed. “I see.” Like a lawyer confronting a witness who has just incriminated himself, he wanted to make sure he had understood Greenspan correctly.
“Antitrust action–the threat or reality of it–coupled with jawboning, coupled with procurement policies, were among the ingredients that enabled [President John] Kennedy to roll back steel prices in 1962,” Proxmire explained, presenting the standard case for the New Frontier approach to inflation. “Do you think of action by a chief executive would be irrelevant?”
“Yes, sir; it is. It’s treating the symptoms of the problem,” Greenspan insisted.
But surely Greenspan would support a tough line on price fixers?
“No, sir,” Greenspan answered.
“All right, why?”
Greenspan launched into his views on antitrust, restating his Randian paper unapologetically. With a very few exceptions, the entire edifice of antitrust law should be jettisoned. Monopoly power almost never harmed consumers.
Let me ask you this one, Mr. Greenspan, and see if you can bat it back over the fence,” Proxmire continued. “The steel industry has increased its prices by 30 percent this year, chemical industry by 30 percent. . . . A fantastic increase. Nothing ever like it. . . . Nonferrous metals increased their prices 48 percent. Oil by 82 percent. . . . This is why it seems to me that the concentration problem is so critical with respect to inflation.”
Greenspan might have conceded the point. Proxmire’s numbers were broadly correct, and the senator had the power to vote against his confirmation. But instead of giving in, Greenspan responded with an economics lesson.
“Let me see if I can distinguish between the general effect of inflation and the specific prices themselves,” he began. The general price level reflected the amount of money in the economy relative to the supply of goods, but the specific price of certain commodities could shoot up independently, reflecting shortages or special circumstances. Those indiosyncratic price spikes would result in inflation only if more money was printed. In the absence of money printing, a price spike in some commodities would be offset by falling prices elsewhere. Therefore the rising cost of steel or chemicals should not be confused with inflation.
More senators weighed in, and the economics lesson continued. Senator Joe Biden of Delaware wanted to know whether Greenspan’s past consulting ties would affect his policy judgments. The nominee had pledged to sever all connections with Townsend-Greenspan while in government service, and to give up his claim to its revenues so long as he remained in Washington; the CEA salary, at $42,500, represented a huge sacrifice. But even if Greenspan cut his ties with his company, surely he would still be biased? Would he not favor the firms that would be his clients when he returned to the private sector?
“I don’t think that my ideas change because of the particular job that I hold. I take ideas seriously,” Greenspan responded. He had opposed quotas on foreign steel imports, even though these suited the steelmakers who paid him large retainers. “While I have nothing against making money, that is not what I am in business for,” Greenspan said simply.
Biden had to admit that this had the ring of truth about it. Greenspan’s ideas were far too extreme to reflect expediency. Even though he must surely understand that Randian libertarianism would harm his political prospects, Greenspan was not softening his opinions. To the contrary, he was calmly sticking to his positions. Intellectual honesty seemed to define him.
“I am glad that the president picked you,” Biden declared. “If he picks a conservative, I want him to pick a straight one and a bright one.”
Proxmire had been waiting for his moment to weigh in again. “I am not so sure that if you are going to pick an executioner that you want to pick one with the sharpest possible ax,” he interjected.
“You want it clean,” Biden responded. “If I go, I want a clean knife. Just, ‘Bang.'”
Proxmire had his own knife out for Greenspan. “You have indicated at one time or another that you don’t support the concept of a strongly progressive income tax.”
“That is correct. I do not,” Greenspan responded.
“You do not?” Proxmire explained. The United States had taxed the incomes of the rich at a higher rate than those of the poor since the passage of the Sixteenth Amendment in 1913. The ease with which he confessed to this fantastical ambition was both disarming and horrifying. The man was a riddle. He was courteous, calm, and absolutely terrifying.
“The logic underlying the equity of the income tax per se, I find very elusive,” Greenspan said evenly.
“Why isn’t it simple?” Proxmire demanded. “The utility of a dollar is so much less for a man who earns $100,000 a year than a man who earns $10,000 a year.”
Greenspan stood his ground, insisting that a progressive tax was “not consistent with a free society.” But Proxmire came at him again.
“Would you, then like to see a flat tax on all incomes?”
“That would be my ideal state, but I scarcely expect it to happen,” Greenspan replied.
“But that is the direction you would want to have government policy move?”
“My view on this is perfectly clear,” Greenspan answered. Then he added that nobody else in Washington agreed with him. “I am a minority of one,” he said squarely
The hearing had already lasted for three hours, and the senators understood that they confronted a puzzle. Greenspan had lectured Joe Biden on how seriously he took ideas; and if he tried to make the nation conform to his ideas, the results would be hair-raising. But if he truly accepted that he was a minority of one, his opening joke to the committee might turn out to be true. He might be so far off toward the fringe of the policy debate that he really would be a sideman. His practical impact on the government might be negligible.
Proxmire made one final attempt to bridge the gulf with Greenspan. The nominee’s manner was so reasonable that it was hard to understand how his views could be so unreasonable.
“My problem with your nomination,” Proxmire summed up, “is that it is very difficult, because you are honest, you are capable, and some of the things that you propose I enthusiastically applaud; but I have a great, great difficulty with the fact that you are a free enterprise man who does not believe in antitrust, does not believe in consumer protection, does not believe in progressive income tax. . . . the old-style laissez-faire capital system is dead,” Proxmire continued; the challenge for intelligent policy makers in the late twentieth century was how to make the mixed economy work better. “With the greatest goodwill in the world, you are not going to go back to Adam Smith. You know that.”
“I am aware of that,” Greenspan conceded. But he was still not backing off. However popular the mixed economy, its existence was precisely the problem. The past decade had demonstrated how each encroachment by the state would fuel demand for the next one, driving the nation inexorably to price controls and stagflation. “My observations of the fundamental mechanisms by how this particular type of mixed economy works is one of the reasons why I am such a strong advocate of free enterprise capitalism,” Greenspan insisted. “We have come to a point where the damage being done by our mixed economy policies is very patent.”
Which part of Greenspan mattered? The reassuring style or the far-out ideas? The modesty or the Randian ambition? After questioning Greenspan closely, Proxmire concluded that the nominee’s fringe libertarianism counted for more than the unassuming sideman pose–a CEA chairman who openly denounced the mixed economy was simply not acceptable. But although he opposed Greenspan for his ideology, the senator befriended him for his character. After an overwhelming majority of his colleagues voted to confirm Greenspan, Proxmire developed an excellent relationship with him.
As it turned out, Greenspan never served in the Nixon administration. The day that he testified before the Senate, the president’s press secretary announced that Nixon would appear on television and radio at nine o’clock that evening. A crowd of curious Americans collected around the White House, braving the August humidity and intermittent rain to watch the newsmen come and go, savoring the thrill of a dramatic moment in the nation’s history. At 7:30 p.m., Nixon left the White House for the short walk to the old Executive Office Building, and the crowd outside the gates waved U.S. flags and sang “America” as he walked slowly up the steps, his head bowed, alone. Somebody put up a sign reading DING DONG THE WITCH IS DEAD. A little while later the president returned and delivered his promised address to the nation from his desk in the Oval Office. Speaking in strong tones, his emotions firmly under control, Nixon announced his resignation, effective at noon the next day. The next morning Gerald Rudolph Ford Jr. was sworn in as the thirty-eighth president of the United States, famously declaring, “Our long national nightmare is over.””
(THIS SEGMENT IN CHAPTER EIGHT OF THE GREENSPAN BIOGRAPHY WAS EXCEPTIONALLY INTERESTING BECAUSE THERE WAS A VERY INTERESTING DEBATE BETWEEN WISCONSIN SENATOR WILLIAM PROXMIRE, WHO I HIGHLY RESPECT AND IS ON THE SENATE BANKING COMMITTEE, AND ALAN GREENSPAN, WHICH TOOK PLACE ON AUGUST 8, 1974, THE DAY BEFORE REPUBLICAN PRESIDENT RICHARD NIXON RESIGNED. ALAN GREENSPAN’S FAILURE TO REALIZE THAT YOU HAVE TO HAVE A PROGRESSIVE FEDERAL INCOME TAX, BASED ON ABILITY TO PAY, IF YOU DON’T, IT WOULD NOT WORK AND GET OUR COUNTRY INTO A HUGE DEBT, WHICH IS SOMETHING THAT EVEN CONSERVATIVE MARGARET THATCHER THOUGHT WOULD HAPPEN. ALAN ALSO HAD A HUGE PROBLEM WITH NOT WANTING TO REGULATE THE HUGE, UNREGULATED, GROWING, TOXIC DERIVATIVE MARKET, WHICH I’M GOING TO TALK ABOUT IN THE NEXT EXCERPT FROM THIS BOOK AFTER I PUT THE EXCERPT TALKING ABOUT FORMER FED CHM PAUL VOLCKER, WHO WAS REALLY THE BEST FED CHAIRMAN OF THEM ALL.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran