It “was a hard company to keep alive.” That’s how Elon Musk described the rise of PayPal.
Musk’s fortune is an effect of him creating companies that investors didn’t think amazing. With Tesla, SpaceX and PayPal, Musk would have gladly traded enormous amounts of equity in the past for capital, but for a persistent lack of takers. His trillionaire status can be found in the previous truth.
Musk routinely came to mind while reading the retrospectives on Alan Greenspan. The Wall Street Journal’s editorial page made a case that Greenspan’s “easy money” policies set the stage for the carnage in 2008. If we ignore that forward-looking markets in no way priced an outcome that the Journal directly tied to an errant Greenpan Fed, we can’t ignore a truth vivified by Musk’s years of struggles amid 1 percent and “zero” Fed rates: money is never, ever easy.
Unfortunately, Neil Irwin at the Washington Post similarly wrote as though Greenspan’s Fed was the one governmental entity in the history of mankind that could decree a market price artificially low (1 percent), only for the market good decreed near costless to become more, not less plentiful. Irwin observed that Greenspan’s economy grew through “bubbles.” Oh dear.
Irwin perhaps ignored that for the enthused to express that excitement in the marketplace, they must have less-than-enthused sellers willingly sell them shares, debt, and other securities. Translated, “markets” by their very name restrain so-called “bubbles” precisely because they are clashes of optimists, pessimists and those in between.
At the New York Times, Roger Lowenstein channeled the Journal editorial page, albeit from a lefty angle. By seemingly “allowing” markets to be (“No one had championed the free market system or worked to block financial regulation, which he disparaged as both harmful and unnecessary, with more ardor than he had”), Greenspan’s policies allegedly set up a collapse of monstrous proportions.
As with the Journal and Irwin, Lowenstein took the Fed going to 1 percent literally. Had Musk been worth talking to in the 2000s, he could have told Lowenstein that 1 percent borrowing costs were like $10,000 Ferraris: lots of demand at the price, vanishingly little supply.
The market collapse that Greenspan’s policies allegedly caused? Not asked is why would Greenspan have known what investors didn’t. The answer is that no one saw 2008 coming, and that’s because no one saw abjectly inept government intervention coming.
Instead of blaming Greenspan for something that happened well after he left the Fed, Lowenstein and the Journal’s editorial page would have served readers better by musing about what would have happened if Bush, Bernanke, Paulson et al had done nothing as markets communicated crucial messages. With Lowenstein it can at least be said that he believes against logic and history that government can and should centrally plan good outcomes. As for the Journal, its editorialists seemingly forgot what they’ve long preached about markets always and everywhere overwhelming artificially low prices decreed by governments.
Implied in the Greenspan narrative is that he did bad things that markets waited years to price. Except that markets don’t wait to price calamities any more than they wait to reward future trillionaires. In Elon Musk’s remarkable success that 99.99999% of investors didn’t foresee, we can see the absurdity of Greenspan being blamed for something that happened long after he left the Fed.
Skeptical of markets, it’s understandable that Irwin and Lowenstein would write as they have about Greenspan. Less understandable is why an editorial page with the motto “Free People, Free Markets” would join them.
