Jon Stewart and Alan Greenspan: Best Interview Ever

Alan Greenspan made an appearance on The Daily Show to plug his new book, but instead of the shallow, softball exchange he may have been expecting, Jon Stewart knocked him back on his heels with one of the most insightful interviews I’ve ever heard.

They covered the myth of the Free Market, the Gold Standard, the Fed’s role in controlling the quantity of fiat money, inflation, irrational exuberance… all in the span of about 5 minutes and all in a comedic context.

The coup de gras is when Greenspan admits that even with all the complex mathematical models, neither he nor anyone else is any better at forecasting now than they were 50 years ago!

Pure Brilliance. This interview should be mandatory viewing for any student of FOMC operations and monetary history, and I think libertarians and many Ron Paul supporters will particularly enjoy it.

You can (and should) view the entire video at the Comedy Central Daily Show website. Here’s a sample of some of the exchanges:


Stewart: (after Greenspan’s explanation that the market moves on expectations of the Fed move, not the fundamentals of it) So the Fed, or whoever’s leading it, if they wanted to could in fact “goof” on all of us…
Greenspan: (smiles) You wouldn’t want to.

Stewart: When you say “Open Market,” I always wonder… Why do we have a Fed? Wouldn’t the market take care of interest rates and all that? Why do we have someone adjusting rates if we are a free market society?
Greenspan: We didn’t need a central bank when we were on the Gold Standard…[Conspiracy theorists note- the Fed was created 20 years BEFORE we decoupled from the Gold Std -Ed.] …people would buy and sell gold and the markets would do what the Fed does now… but by the 1930s most everybody in the world decided that the Gold Standard was strangling the economy and universally the Gold Standard was abandoned…
…you need somebody out there or some mechanism to determine how much money is out there because the amount of money in an economy relates to the amount of inflation…
Stewart: So we’re not a free market then- there is an invisible, there is a “benevolent” hand that touches us…
Greenspan: Absolutely, you are quite correct. To the extent that there is a central bank governing the amount of money in the system, that is not a Free Market, and most people call it regulation [this statement should forever be enshrined as a quote- Ed].

Stewart: When you lower interest rates, it drives money to stocks and lowers the return people get on savings.
Greenspan: Yes, indeed.
Stewart: So they’ve made a choice - “We would like to favor those who invest in the stock market and not those who [save]”…
Greenspan:That’s the way it comes out, but that’s not the way we think about it.
Stewart: Explain that to me. It seems to me that we favor investment, but we don’t favor work. The vast majority of people work, they pay payroll taxes, and they use banks. And then there’s this whole other world of hedge funds and short betting… y’know, it seems like craps. And they keep saying, “No no no, don’t worry about it, it’s Free Market, that’s why we live in much bigger houses.” But it really is, it’s the Fed, or some other thing, no?
Greenspan: I think you’d better re-read my book. [trying to work the plug into the surprising line of questioning- Ed.]
Stewart: Am I wrong that we penalize work by not making the choice to…
Greenspan: No, what a sound money system does is to stabilize the elements in it and reduce the uncertainty that people confront, and when people confront uncertainty they withdraw and it reduces economic activity…

Stewart: So it’s all about perception then. It’s about making people believe the system is sound. If the stock market is high, people feel confident in spending, and if it lowers, they feel less confident?
Greenspan: Well…uh…I think you have to realize, there are certain aspects of human nature, which move exactly the way you defined it. The problem is, periodically we all go a little bit euphoric until we are assuming with confidence that everything is terrific, there will be no problems, nothing will ever happen, and then it dawns on us- NO!
Stewart: And then it goes the other way.
Greenspan: Exactly.
Stewart: Huge Fear.

Greenspan: I was telling my colleagues the other day… I’d been dealing with these big mathematical models for forecasting the economy, and I’m looking at what’s going on the last few weeks and I say, “Y’know, if I could figure out a way to determine whether or not people are more fearful, or changing to euphoric… I don’t need any of this other stuff. I could forecast the economy better than any way I know. The trouble is, we can’t figure that out. I’ve been in the forecasting business for 50 years, and I’m no better than I ever was, and nobody else is either.”
Stewart: (Leans back in chair)…You just bummed the sh*t outta me!


 

13 Comments

  1. GordonUnleashed » Blog Archive » Quote of the Day said,

    September 19, 2007 @ 1:42 pm

    […] a transcript of Alan Greenspan on The Daily Show with Jon Stewart: I was telling my colleagues the other day… […]

  2. BNJ said,

    September 19, 2007 @ 6:03 pm

    Wow, thanks, what a great interview!

    You know, I’ve read enough to know the pragmatic difficulties associated with the gold standard, but the idea itself is so damned appealing that I find myself revisiting it time and time again, to see if there is some way it can be made to work in the modern world. Wouldn’t it be cool if our monetary supply was regulated by an actual market, rather than by the machinations of fallible, human appointees to a quasi-governmental agency?

    One of the reasons I have such a sentimental attachment to the gold standard is that when I was a whippersnapper, way back in college, I read a fairly compelling essay in Ayn Rand’s “Capitalism, the Unknown Ideal” in which another young whippersnapper economist named Alan Greenspan passionately argued for a return to the gold standard, and against the very *existence* of the Federal Reserve that he would one day head.

    Amazing, huh?

    BTW, concerning your conspiracy theorist note about the Federal Reserve predating the abandonment of gold-backed currency by 20 years? True, but it all depends on what the definition of the word “is” is. The break from gold, as I’m sure you know, was a gradual one, and wasn’t entirely complete until Bretton-Woods in, if I recall correctly, 1972 or thereabouts. At that time, a dollar was defined to be worth 1/35 an ounce of gold. Last I checked, it’s now more like 1/700th an ounce. If I didn’t know better, I’d say we’ve been had. If I didn’t know better, I’d say those gold standard crackpots might have a point after all.

  3. Will said,

    September 19, 2007 @ 9:54 pm

    BNJ- Yep, I’ve been a gold fan for some years, for the exact reason you state- we need some basis for the market to be the arbiter. I’ve gone from thinking FDR was the root of all evil (for outlawing gold ownership in ‘33, then devaluing the currency, effectively stealing from the citizenry) to thinking that he probably didn’t have much choice, given the circumstances. I definitely think Nixon was the bigger villain for abandoning the Standard altogether, and any hopes of getting back to a fully-backed currency.

    Currently, I believe even a very “fractional” basis (someone mentioned $350/ounce) would help, and they could inflate the money supply at the “magical” 2%/year they seek.

    However, it brings into the picture the game of gold supply manipulation by various countries, which I guess would be similar to their using sterilization and treasury hoarding now. Maybe a Uranium Standard, so the most nukes would also mean the most money, and nuclear war would be a form of deflation! Thanks for dropping by!

  4. Cedric said,

    September 20, 2007 @ 9:35 pm

    Please forgive my ignorance of US fiscal policies but I have a question which may be foolish. Also this may be a little off topic with regards to this post but after listening to the interview and seeing what has happened recently it had me thinking.
    As I understand it, the Federal Reserve is a private company and they control the money to some extent along with the interest rates. Now if I was the Feds and I had a stack of shares that I wanted to off load before a possible recession (for example) I would surprise the market with a big interest drop and sell my shares (in a rising market) to all the buyers rushing in on the “good news”. My question is would that be possible or is there something in place that prevents this sort of conflict of interest? For example are the Feds not allowed to hold shares or maybe they are forced to disclose, ahead of time, their intent with respect to these shares. Not that this would be of much use if all my shares were owned by an offshore company hidden behind a veil of secrecy that successfully hid my involvement.

  5. Will said,

    September 20, 2007 @ 10:34 pm

    Hi Cedric,
    I don’t think this is off-topic at all, and thanks for making the comment. The Federal Reserve is “quasi-private” in that its Board members are not elected politicians, but they are political appointees of the U.S. President. Also the Board members make up the majority of the FOMC, which controls the Federal Reserve’s (or, “United States Central Bank’s”) monetary policy. And the Fed and FOMC were themselves created under laws passed by politicians, who have the power to modify those laws and change the power structure if they wish. This is why they are always having the Charmain “report to them” in the hearing du jour.

    So, the Fed is a government agency, “sort of,” and it is beholden to the government that gives it its power. HOWEVER, the bill that brought the Fed into existence was in fact written by the most powerful bankers in the world, and passed along to their crony politicians to put into law. So, in that way, the Fed is truly as I say, “Of the bankers, By the bankers, For the bankers.”

    The body itself is not a private, profit-seeking corporation, but each of its member banks is, and I’m sure there’s plenty of room for plenty of people to make plenty of money off of insider information.

    I doubt many people outside of the members of the Board of Governors themselves know for certain beforehand what they’re going to decide, and sometimes they don’t even know until they meet and argue it out. Mostly its just a good guess, which with the new “transparency” of the Fed, is not that difficult, even for a cotton picker like me.

    But the big equalizing factor is that even the guys (and chicks) in the room making the decision can’t predict exactly what reaction The Market is going to have based on their decision. Stocks can soar or crash, depending on which way the herd stampedes. The brain-dead press will always attach cause to it later, citing “the market soared on the Fed easing monetary policy,” or else “the market crashed on the economic uncertainty telegraphed by the Fed’s easing monetary policy.”

    As for predictability, we need look no further than the 10-year bond yield, which was going down, down, down. Then the Fed LOWERED the short end 50 basis points, and the yield on the longer end is… surging UPWARD! There are larger economic factors at work, which is one reason why the Fed can influence the economy, but not completely control it.

    So, even if one knows what the decision’s gonna be, he is still taking a chance by predicting what the market’s reaction will be. It’s by no means a given.

    (Note: If you combine the facts with sentiment, however, things clear up quite a bit; and sentiment is more observable than Greenspan implies in this interview– I think maybe the Ivory Tower decision-makers are isolated from it as many other “experts” are, trying to get a read on it from a “no-touchy” distance.)

    If the rich bankers on the “inside” at the Fed want to get richer and richer (and don’t they all), their easiest play is to f*ck around with the bond market and especially with the hocus-pocus world of Asset-Backed Securities, and I’m sure they do both with great vigor, using all the available inside information they can gather.

    But they don’t intentionally herky-jerk the entire economy just so they can personally profit in the short term. That could bring the party to an end. Instead, they continually make millions in the background as long as the sheep (us) are stupid, happy and well-fed. Pardon the pun.

    So their primary goal with monetary policy SHOULD be to maintain a stable economy and let the market work… but in the end they lean more towards trying to keep the economy GROWING at all costs, which is certainly, as Jon Stewart pointed out so well, not at all a FREE MARKET.

  6. Cedric said,

    September 21, 2007 @ 12:32 am

    Thanks for that Will, that makes a lot of things clearer for me. Just one more question on a point you raised if I may. You said “but in the end they lean more towards trying to keep the economy GROWING at all costs”. That’s something I’ve heard before even here in Australia. What is this addiction to constant growth? Is it purely to make more money off a rising portfolio or is there some other, more virtuous reason? Isn’t growth unsustainable in the long run? And if growth is artificially sustained, aren’t they simply gearing up for a bigger fall for all of us? I guess that while I can see the benefits of a stable economy (which shouldn’t be too difficult to achieve if the market was left to itself) I just can’t see the benefits of artificailly sustained growth.

    Thanks again. It’s all informative and interesting.

  7. LP said,

    September 21, 2007 @ 8:21 am

    Great interview. He said the one thing that most economist hate to admit. My professor used to say that an economists broken crystal ball is better than nothing. Well I now realize that a broken crystal ball can lead to a whole lot of trouble.

    I’ve seen this guy in interviews and I totally disagree with him. I happen to think he did just as much damage as he did good. From keeping the interest rates down for as long as he did to giving his thumbs up to the tax package. Now he says that if he had to do it over, he’d still do the same. All the common people knew back in 04 & 05, when we saw friends buying houses with 1 year arms that there was going to be trouble ahead. I was totally against the tax cut. I used to ask myself if the extra $500 was better or having a sound US economy was better? I choose the latter. This country has been terribly been mismanaged during this presidency. Lets not forget the execution of the war. Lets not forget Osama bin hiding for a long time and has still yet to be caught. Unless of course he’s like Tupac and will keep releasing years of recordings after his death. I wish we could get past the politics and focus on what truly makes the country better. From Global Warming to welfare. We need to fix things from the human perspective.

  8. Will said,

    September 21, 2007 @ 4:15 pm

    Cedric- You make the perfect point: that in the long run, continuous growth is unsustainable and any artificial means of creating such growth only adds to the size of the downturn/crash which has been delayed.

    I don’t think The Fed’s purpose is really to continue running up the stock market- I believe that’s a side effect of their actions. The bond and currency markets dwarf the stock market many times over, and those are the places where the big banks play most of their games.

    I personally think Greenspan was just shortsighted, and over-stimulated the economy at every turn, which is why we’re in the predicament we’re in now. Price inflation (in housing now, in equities in the ’90s) due to excessive monetary inflation. And the only correction for that is for the rubber band to snap back, as it did for stocks in ‘00-’03, and is beginning to do for real estate now.

    From reading Bernanke’s writings and speeches, I truly believe he would rather ensure that the monetary system continues to function smoothly, and let the market settle the supply/demand equation, even if that means a recession if necessary for the economy’s long-term health.

    To me, and I think to Bernanke, “price stability” means keeping a liquid market and avoiding excessive inflation or deflation, otherwise letting the market determine prices, whether that’s increasing or decreasing. Most people seem to think “price stability” means “make it so that prices only go up.” As we all know, that’s just plain crazy. Look at how often stocks in a healthy uptrend have pullbacks! A constant uptrend with no pullbacks is not healthy, it’s a bubble awaiting a crash. Prices will eventually find their proper levels, no matter what the Fed, the Chinese or the politicians do. And the more they meddle, the more painful the result.

    Whether I’m right about Bernanke (and whether he can influence the entire Fed in that direction) remains to be seen. The 50 basis point decrease we just had tells me either 1) I’m wrong, and he’s just another Greenspan or 2) He believes the effects of the real estate credit crisis are just beginning and are much more severe than anyone is publicly estimating, and he’s padding the economy for the debt-deflation hit it’s about to take.

    Anyway, I completely agree with you- when it comes to the economy, “up, up and more up” is not “stable” at all.

  9. Thomas said,

    September 21, 2007 @ 4:17 pm

    Cedric, you’ve hit the nail on the head. If the Fed was worried about long term economic stability then they would stay as much out of the market as possible and if bad investments were made they would allow the market to correct. But we have a Fed which reacts to every single blip in the Dow in order to convince people in the righteousness of its own existence. But the correction will come as it always does and the higher its been propped up the more precipitous the fall will be.

  10. Will said,

    September 21, 2007 @ 4:19 pm

    LP - But, but, but… this is Amurrica! What’s all this talk about personal sacrifice and personal responsibility? We’re supposed to grab all we can get like greedy children, then look for someone to blame when we get a tummy ache!

  11. Will said,

    September 21, 2007 @ 4:20 pm

    Thomas - I see our posts are 2 minutes apart, so we were writing at the same time. GMTA, brother!

  12. Jon Stewart and Alan Greenspan: Best Interview Ever - Gossip Rocks Forum said,

    September 27, 2007 @ 9:01 am

    […] Jon Stewart and Alan Greenspan: Best Interview Ever Jon Stewart continues to display his brilliance. September 19, 2007 at 11:37 am by Will Alan Greenspan made an appearance on The Daily Show to plug his new book, but instead of the shallow, softball exchange he may have been expecting, Jon Stewart knocked him back on his heels with one of the most insightful interviews I’ve ever heard. They covered the myth of the Free Market, the Gold Standard, the Fed’s role in controlling the quantity of fiat money, inflation, irrational exuberance… all in the span of about 5 minutes and all in a comedic context. The coup de gras is when Greenspan admits that even with all the complex mathematical models, neither he nor anyone else is any better at forecasting now than they were 50 years ago! Pure Brilliance. This interview should be mandatory viewing for any student of FOMC operations and monetary history, and I think libertarians and many Ron Paul supporters will particularly enjoy it. You can (and should) view the entire video at the Comedy Central Daily Show website. Here’s a sample of some of the exchanges: Stewart: (after Greenspan’s explanation that the market moves on expectations of the Fed move, not the fundamentals of it) So the Fed, or whoever’s leading it, if they wanted to could in fact “goof” on all of us… Greenspan: (smiles) You wouldn’t want to. Stewart: When you say “Open Market,” I always wonder… Why do we have a Fed? Wouldn’t the market take care of interest rates and all that? Why do we have someone adjusting rates if we are a free market society? Greenspan: We didn’t need a central bank when we were on the Gold Standard…[Conspiracy theorists note- the Fed was created 20 years BEFORE we decoupled from the Gold Std -Ed.] …people would buy and sell gold and the markets would do what the Fed does now… but by the 1930s most everybody in the world decided that the Gold Standard was strangling the economy and universally the Gold Standard was abandoned… …you need somebody out there or some mechanism to determine how much money is out there because the amount of money in an economy relates to the amount of inflation… Stewart: So we’re not a free market then- there is an invisible, there is a “benevolent” hand that touches us… Greenspan: Absolutely, you are quite correct. To the extent that there is a central bank governing the amount of money in the system, that is not a Free Market, and most people call it regulation [this statement should forever be enshrined as a quote- Ed]. Stewart: When you lower interest rates, it drives money to stocks and lowers the return people get on savings. Greenspan: Yes, indeed. Stewart: So they’ve made a choice - “We would like to favor those who invest in the stock market and not those who [save]”… Greenspan:That’s the way it comes out, but that’s not the way we think about it. Stewart: Explain that to me. It seems to me that we favor investment, but we don’t favor work. The vast majority of people work, they pay payroll taxes, and they use banks. And then there’s this whole other world of hedge funds and short betting… y’know, it seems like craps. And they keep saying, “No no no, don’t worry about it, it’s Free Market, that’s why we live in much bigger houses.” But it really is, it’s the Fed, or some other thing, no? Greenspan: I think you’d better re-read my book. [trying to work the plug into the surprising line of questioning- Ed.] Stewart: Am I wrong that we penalize work by not making the choice to… Greenspan: No, what a sound money system does is to stabilize the elements in it and reduce the uncertainty that people confront, and when people confront uncertainty they withdraw and it reduces economic activity… Stewart: So it’s all about perception then. It’s about making people believe the system is sound. If the stock market is high, people feel confident in spending, and if it lowers, they feel less confident? Greenspan: Well…uh…I think you have to realize, there are certain aspects of human nature, which move exactly the way you defined it. The problem is, periodically we all go a little bit euphoric until we are assuming with confidence that everything is terrific, there will be no problems, nothing will ever happen, and then it dawns on us- NO! Stewart: And then it goes the other way. Greenspan: Exactly. Stewart: Huge Fear. Greenspan: I was telling my colleagues the other day… I’d been dealing with these big mathematical models for forecasting the economy, and I’m looking at what’s going on the last few weeks and I say, “Y’know, if I could figure out a way to determine whether or not people are more fearful, or changing to euphoric… I don’t need any of this other stuff. I could forecast the economy better than any way I know. The trouble is, we can’t figure that out. I’ve been in the forecasting business for 50 years, and I’m no better than I ever was, and nobody else is either.” Stewart: (Leans back in chair)…You just bummed the sh*t outta me! Jon Stewart and Alan Greenspan: Best Interview Ever • DummySpots.com […]

  13. Max Casebeau, Director said,

    October 13, 2007 @ 3:24 am

    The Federal Reserve system is not a reserve,( has no money) not federal, and
    and simply an institution where bankers can make coffee once a month.
    stewart has it right. its all about time and timing and human nature.

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