Wednesday, January 09, 2008

Book Review: Alan Greenspan's Age of Turbulence

Bank on Greenspan for a good read

The Age of Turbulence: Adventures in a New World by Alan Greenspan

Before reading it, I didn’t much like the looks of this book. First of all, it is 531 pages huge. Second, it is written by a banker. Even worse, it really truly is about banking. High level bank governance over the world’s largest economy, mind you, but banking nonetheless.

In spite of these undeniable negatives, I cracked it open and I was thankful I did. It undeniably merits the buzz it has generated.

Alan Greenspan is the former Chairman of the United States’ Federal Reserve Board; the independent body that governs the money supply of the United States and indirectly the value of the American dollar, the world’s reserve currency. He held that crucial position from 1987, when he was appointed by President Reagan, until last year, when he retired. In that position, he oversaw the American financial system as it completed one of the longest and most successful economic expansions in recent memory.

So successful was his service as Chairman and so significant was his gravitas, that there grew an entire mini-industry of Greenspan-watching. This was carried to the extreme where CNBC regularly broadcast live feed of Greenspan and his briefcase as he arrived at meetings of the Federal Reserve Board. The premise was that a full briefcase meant a rate hike. Greenspan responds in this book that it usually meant he packed his lunch.

It is difficult for those of us who have come of age in our era of balanced budgets and low interest rates to understand that the current situation is the exception, not the rule. Much of the financial history of the 20th Century is the story of how central bankers and governments struggled with inflation and deficits since abandoning the gold standard in the 1930s. For Greenspan, however, this struggle was the story of his career. Indeed, Greenspan spends significant portions of the book decrying the “populism” and Keynesianism that led to stagflation in the 1970s and 20 percent interest rates in the early 1980s.

While the memoir of Greenspan’s time as Chairman constitute the meat of the book, it is also the best known and the least remarkable part of the book. Since Greenspan has been Chairman for most of my adult life, his early life story as a young economist, libertarian activist and acolyte of Ayn Rand was perhaps the most surprising to me. Rand actually nicknamed the young Greenspan “The Undertaker” for his dour demeanor during their weekly gatherings of like-minded intellectuals in New York City of the 1950s.

While Greenspan made a career of astute economic analysis, he was also a political activist with Conservatives in the Republican Party and served under President Richard Nixon. He was an important member of the Gerald Ford administration, where he served as the Chair of the Council of Economic Advisors. It was his Republican credentials and his time in the Ford Administration that earned him the confidence of the Reagan administration which appointed him to the powerful and fully independent position of Chairman of the Federal Reserve Board.

The most compelling and surprising part of the book, however, is in the final chapters where Greenspan, freed from the constraints and restrictions of having the markets hinge on his every word as Chairman of the Fed, prognosticates about current economic trends he sees developing in the American and world economy. Greenspan made his early career developing economic forecasts, and his skill clearly shows in this section. Of particular interest are the sections where he identifies one of the constraints on future growth as the inadequate education system in the United States and its skilled labour shortage. Clearly there is a lot here that applies directly to Canada as well.

Highly Recommended.