Matthew's Reviews > The Age Of Turbulence: Adventures In A New World

The Age Of Turbulence by Alan Greenspan
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Aug 09, 11

bookshelves: biography, economics, history, markets
Read from June 28 to August 09, 2011

One can't help coming to this book with the starting premise that, smart of this man was, he got it wrong. Wrong about beating inflation, wrong about being too laissez faire on financial regulation, wrong about keeping rates and policy too loose for too long. Indeed one embarks on this book asking how Greenspan explains himself.

For all that though it's an educational read. The first half is more interesting, as Greenspan discusses his career history as a pioneering industrial economist, and then his political involvement with various White House administrations. The second half is less interesting, not because his opinions on the economic future of the US and her trading partners, or on issues of demography, productivity, technology, corporate governance, regulation, etc, are not worth reading, but because they are not especially unique. Perhaps the one thing that stood out here was his belief that by 2030, inflation in the US will be 4-5% -- because the disinflationary forces of globalisation and IT driven productivity will have been maximised, concomitantly the developing country savings pool will also have stopped expanding -- and US long term bond yields could be 8%. (This was published in 2007.) This was ironic to me because people see the Greenspan Fed as thinking they beat inflation -- which perhaps they did, but at least he attributes it to structural forces and doesn't take the credit for himself as suggested.

So how does Greenspan fare in the first half? I'm not American, so perhaps I'm more forgiving. He comes across as a policy-maker whose instinctive stance is hawkish, but turned less so for various reasons.
In 1991 he was hawkish, and remained so through the mid 1990s during which the Fed pulled off a soft landing. In the late 90s, though, he came to believe the IT boom had led to a permanent improvement in productivity, which allowed an above trend growth rate without leading to inflation -- allowing the Fed to remain more dovish on rates. This was compounded in 1998 by the Russian debt crisis he felt any tightening could be destabilising in the fragile environment, and that this risk over-weighed the potential inflationary risk from a dovish stance. Then in the lead up to the dot com bubble, the Fed backed away again from watching asset prices, deciding that any attempt to control the bubble by raising rates would be futile, and hence going back to watching CPI inflation. They did raise rates though. But after 9/11, rates were lowered aggressively -- again because of fear that Fed tightening might destabilise markets (it does seem here the Fed believed its actions matters to asset prices on the way down but not on the way up). Rates were further lowered in 2003 because in the aftermath of the dot com bust there were concerns over deflation. Yet shortly after, house prices started rising sharply -- Greenspan notes this but his discussion of rates ends here, rather blurred over.

Other interesting tidbits are his positive views on the Henry Ford and Clinton administrations, and negative ones on the 2 Bush administrations. In addition, he is a fiscal hawk, and makes the case for fiscal conservatism very convincingly. On this point it surprised me greatly that in the final years of Clinton's house, in 2000, the Treasury was in a budget surplus and was actually forecasting a very high level of surpluses going forward, to the extent that they expected to pay down the US debt fully within a decade and then have the problem of the Fed not being able to execute Open Market Operations because there was no US debt market. (Incidentally I believe Singapore doesn't need to incur debt either as our books balance regularly but the government issues debt in order to have a SG bond yield curve and presumably also for policy flexibility.) This gave Bush II the political ammunition with which to push through his tax cuts -- even though after the dot com crash and before the cuts were implemented the budget deficit sank sharply and surprisingly into a large deficit; amazingly the forecasters hadn't realised the significant impact of capital gains tax returns that reversed sharply following the 2001 dotcom crash.

So, all in all, a read that starts out interesting, gets a little tedious but is overall worth the time. Even if you disagree with, dislike, or disrespect Greenspan, he was Fed governor for 18 years and his perspective is worth knowing.
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message 1: by AC (new)

AC great review, as always.

Let me recommend this book, if you haven't read it:
http://www.amazon.com/Greenspans-Bubb...

It's very polemical, but very smart & take no prisoners - and a good corrective to AG's self-image. And very short -- read in a day.

You're much too kind to policy makers in 2001 - that argument about how the surpluses were bad was seen by many at the time (moi) as a cynical attempt to FIND a justification for the Bush tax cuts - it was pushed, in other words, by the Republican political machine.

Nor is it quite true that forecasters hadn't realized the impact of capital gains -- It was only *Republican* forecasters who didn't "realize" -- or, more properly, didn't care - dragging out the old Reagan voodoo that tax revenues would RISE as a result of a large tax cut....; and then, as happens over and over and over in America, the media rolls over, wags its tail, lets its tongue hang out, and drools.

One of the interesting things about Fleck's book is a detailed account of Greenspan's "predictive" capacities -- and some of the amazing comments made at his confirmation hearings about that -- this was a guy who, if you put the right answer in front him, STILL wouldn't be able to find it in broad daylight.

Proof that being smart just ain't enough... you need a "nose" for truth (as Aristotle puts it; de Interpr.)


Matthew will absolutely try to get my hands on a copy! thanks for the rec.


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