Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (3 page)

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1926–1958

Do you think Alan might basically be a social climber?
—Ayn Rand
¹

Alan Greenspan was born in 1926. He grew up in New York City. Alan’s parents, Herbert and Rose, divorced when he was young. His father had been a stockbroker in the 1920s, but suffered financially after the Crash. Alan and his mother moved to her parents’ small apartment at the corner of Broadway and 163rd Street, in Washington Heights. Alan’s father remained distant. Described by one of Alan’s biographers as “something of a dreamer, given to aloofness and abstraction,” his son gravitated toward an occupation that perpetuated such tendencies: economics.
²

Herbert was rarely seen. A cousin recalled, “I do remember the ecstasy that Alan exhibited on those rare occasions when his father visited.”
³
On one of these visits in 1935, Herbert gave his son a copy of a book he had written,
Recovery Ahead!
His father’s inscription betrays a rhetorical similarity: “at your maturity you may look back and endeavor to

¹
Nathaniel Branden,
My Years with Ayn Rand
, (San Francisco: Jossey-Bass, 1999) p. 212.
²
Justin Martin,
Greenspan: The Man behind Money
(Cambridge, Mass: Perseus, 2000), p. 3.
³
Ibid., p. 2.

9

interpret the reasoning behind these logical forecasts and begin a like work of your own. Your Dad.”
⁴
The book was a defense of the New Deal, a description of how government funding could end the Depression.
⁵

It is not clear that Alan drew any lessons for life from this episodic parent. (Greenspan did not read
Recovery Ahead!
until years later.
⁶
) That he was drawn to the same occupation may have been in imitation of his father. Despite the book’s losing battle against an economy that was resistant to government funding, Herbert earned a living. Accurate predictions have never mattered much in the field of economics; to forecast is the thing—publicity is essential; competence is occasional.

Alan was an obedient and well-mannered son. However, in what seems an inconsistency, he refused his bar mitzvah, even though his grandfather, whom he lived with, was cantor at a synagogue.
⁷

Alan received top grades and was a “joiner” at George Washington High School. He was president of his homeroom and member of the “lunch squad,” a group that broke up fights at a crowded and pugnacious school. He studied the clarinet and saxophone. He made friends with Stan Getz, a jazz musician one year his junior. He played clarinet in the school orchestra and in the school dance band. He graduated as a member of Arista, an honor society composed of top students.
⁸

After High School: Juilliard School, Road

Musician, and College

Alan next attended the illustrious Juilliard School, attesting to his musical talent. But he was only an average student, so he departed. He joined Henry Jerome and His Orchestra. Saxophonist or clarinetist as duty called, he earned $62 a week, riding buses between engagements in Memphis, Tennessee; Covington, Kentucky; and New Orleans.
⁹
Alan had little to complain about, since his classmates were strewn around the world in such exotic though unhygienic spots as Iwo Jima and Mandalay. He explained to friends that he hadn’t gone to war as a consequence of a medical problem: he had a spot on his lung discovered in an x-ray. One biographer wrote: “This later turned out to be nothing.”
¹⁰

⁴
Alan Greenspan,
The Age of Turbulence: Adventures in a New World
(New York: Penguin, 2007), p. 21.
⁵
Martin,
Greenspan
, p. 4.
⁶
Ibid.
⁷
Jerome Tuccille,
Alan Shrugged: The Life and Times of Alan Greenspan, the World’s Most Powerful Banker
(Hoboken, N.J.: Wiley, 2002), p. 14; Martin,
Greenspan
, p. 6.
⁸
Martin,
Greenspan
, pp. 7–10.

Alan decided to go back to school. He enrolled in New York University’s School of Commerce, Accounts and Finance in 1945.
¹¹
He escaped shellfire, but he was indoctrinated into the behemoth inclinations of postwar America that his high school classmates had grown accustomed to since boot camp. In Greenspan’s division of NYU, known as “the factory,” 9,000 students competed in business specialties, particularly real estate, sales, insurance, and public utilities management. Studies were practical; students learned a trade. Greenspan followed the less trodden and more cerebral route of economics.

Not intimidated by the anonymity of such an assembly line of students, he played clarinet in the orchestra, sang in the glee club, was chosen as president of the Symphonic Society, and was president of the Economics Society.
¹²
Greenspan graduated summa cum laude in 1948 with a bachelor of science degree in economics. In 1950, Greenspan earned his master’s degree in economics from NYU.

Acquaintances thought Greenspan was introverted. Did he view his extracurricular activities as a way to boost his career? Whether or not that was his intention, his friendships paid dividends. Robert Kavesh was probably his best friend at NYU, and they remained close. Kavesh worked on Wall Street in the 1950s before returning to NYU to teach economics. Professor Kavesh aided Greenspan when Alan sought (and received) his doctorate in the 1970s.

To stake his future in the field was a gamble. Whether or not Greenspan had a particular insight, his talents were aligned with the direction in which economic study was moving: he could calculate. By the end of the twentieth century, economics would be consumed in mathematics. Without such talent, a budding genius stood not a chance of a degree.

¹⁰
Ibid., p. 19.
¹¹
Ibid., p. 23.

There was a great urge among economists to define economics as a “science”: it was a matter of respectability and legitimacy. Humanity needed a discreetly annotated and mathematically proven means to avoid another such calamity as the Great Depression.

Moving up—From NYU to Columbia University

Alan Greenspan resisted any particular school of thought. Instead, he sought and captured the good graces of influential figures. Greenspan pursued his doctorate at Columbia University, which, along with Harvard and Princeton, buzzed with innovative studies.
¹³
In time, these theories would calcify into a dogma, the language of the trade would retreat into a catechism of symbolism, and the prescriptions of the arbiters in Washington were genuflections to the orthodoxy of the academy. Eventually, the mandates for government expansion would receive authoritative rationalizations from the universities, and the loop was closed. Anyone seeking tenure in economics inhabited the monastery garden. They bred and nurtured younger seedlings, who also blessed government policies and programs that were too entrenched to reform. The younger generation would mature and grow old, calculating ever more fantastic rationalizations of the impossible.

Columbia was only a subway ride uptown from NYU. Arthur Burns was the most prominent member of the Columbia economics faculty. Burns was coauthor of
Measuring Business Cycles
(1946), a respected text.
¹⁴
On the first day of Alan Greenspan’s doctoral training, the professor asked his students, “What causes inflation?” Silence followed. This seems to have often been the case in Burns’s presence. The pipe-smoking Burns enlightened the class: “Excess government spending causes inflation.”
¹⁵

Greenspan did not entirely agree with Arthur Burns’s economic beliefs, but he did the important thing: he took up the pipe—Burns’s trademark. Arthur Burns’s own political aptitude was of the first order.

¹³
Ibid., p. 27.
¹⁴
Burns was coauthor of
Measuring Business Cycles
(New York: National Bureau of Economic Research, 1946) with Wesley C. Mitchell. Mitchell also wrote
Business Cycles
(1913), which was highly regarded.
¹⁵
Martin,
Greenspan
, p. 29.

The professor moved to Washington to head President Eisenhower’s Council of Economic Advisers in 1953. Burns was later appointed chairman of the Federal Reserve Board under Richard Nixon. Greenspan would also serve in both positions, rising to head the former institution at the same time Burns’s reputation was sledding downhill at the latter.

The Conference Board and Ayn Rand

When Burns left for Washington, Greenspan took a job at the Conference Board (which was then called the National Industrial Conference Board). He did not wait to earn his doctorate. The degree may have been secondary to his friendship with Burns. He may also have been worn out. Greenspan had worked full time at the Conference Board since 1948 while attending school at night.

The Conference Board was a private institution funded by corporations to pursue research. Greenspan immersed himself in detail about a slew of industries, including steel and railroads. He worked alongside Sandy Parker, who later became
Fortune
magazine’s chief economics writer. Parker introduced economic forecasting to the magazine’s readers. Greenspan’s prophecies were often published, an excellent avenue for self-promotion (although many of them did not carry his signature) and an introduction to managing his personal relations with the press.

Greenspan married in 1952. He was encouraged by a friend to call Joan Mitchell for a date. They married 10 months later in the Pierre Hotel, families only. She recalled that Greenspan was not a romantic but a pleasant companion. In Mitchell’s words: “He was an interesting man to talk to.”
¹⁶
This seems an approximate description of his relationship with Congress 40 years later—always the gentleman, but lacking in ardor. They separated 10 months later, and their marriage was annulled.
¹⁷

Ayn Rand would now enter Greenspan’s life. More popularly known today as a novelist (
The Fountainhead
and
Atlas Shrugged
), Rand was, and still is, regaled for her philosophy of Objectivism. To simplify this system of though, the pursuit of self-interest is moral, government interference with individual rights is evil. Her coterie, “the Collective” (meant as an ironic reference to the mass culture, but the joke was on them), met at her apartment from early evening until the cock crowed. Rand defined and corralled good and evil. (“She abhorred facial hair and regarded anyone with a beard or mustache as inherently immoral.”
¹⁸
)

¹⁶
Ibid., p. 31.

Alan’s rise from bottom to top of Rand’s group was a marvel, especially since Rand wanted no part of him. Greenspan was not sure if he existed: “I think that I exist. But I don’t know for sure. Actually, I can’t say with certainty that anything exists.”
¹⁹
Rand was bemused by the debates her top acolyte, Nathaniel Branden, held with Greenspan: “How’s the undertaker?” she’d sneer.
²⁰
Branden played devil’s advocate, so to speak, and pressed the future Federal Reserve chairman with such queries as, “How do you explain the fact that you’re here? Do you require anything besides the proof of your own senses?”
²¹
Apparently, Greenspan did.

Rand and Branden were instinctively suspicious of Greenspan’s motivations. In his autobiography, Nathaniel Branden recalls a man without philosophical inclinations. At lunch, most of their discussions were not about philosophy, but about Greenspan’s disgust with the Federal Reserve: “A number of our talks centered on the Federal Reserve Board’s role in influencing the economy by manipulating the money supply. We talked about the Fed’s destructive contribution to the Great Depression. [Greenspan] spoke with vigor and intensity about a totally free banking system.”
²²
Free banking would eliminate Federal Reserve “policy.”
²³
Such an argument would hold great appeal with Rand, but elicit disclaimers from Arthur Burns. Even then, Greenspan could talk in one direction while moving in another.

¹⁸
Tuccille,
Alan Shrugged
, p. 52.
¹⁹
Martin,
Greenspan
, p. 40. The quote is slightly different in Tuccille,
Alan Shrugged
, p. 53: “I
think
I exist, but I can’t be certain. In fact, I can’t be certain that anything exists.”
²⁰
Martin,
Greenspan
, pp. 39–40.
²¹
Ibid., p. 40.
²²
Branden,
My Years with Ayn Rand
, p. 160.
²³
Ibid.

Four decades later, Branden still can’t reconcile Greenspan’s temperament with the Collective: “Now, looking at [Alan], I wondered to what extent he was aware of Ayn’s opinions. He rarely voiced his feelings about anything of a personal nature, and his language tended to be detached and passive.” Branden recalls that in the discussions of Rand’s
Atlas Shrugged
, Greenspan’s contributions were meager. Complimenting Ayn on some passage, he might say, “On reading this … one tends to feel … exhilarated.”
²⁴

Branden also recalled “[i]f Alan Greenspan mentioned a social event he had attended, Ayn would speculate about his fundamental seriousness or lack of it: ‘Do you think Alan might basically be a social climber?’ ”
²⁵
What specifically he acquired, or expected to acquire, from the Collective is impossible to know. He would learn later, if he did not understand already, the value of social accomplishment.

Greenspan may have been motivated for professional reasons. Objectivism appealed to those who professed freemarket economics. Martin Anderson, later a member of the Reagan administration, was a fringe Randian who would prove instrumental in Greenspan’s rise in the 1960s.