An autobiography in which the real hero is capitalism
Friday, 21 September 2007
Krishna Guha
ALAN Greenspan chose the perfect moment to release his memoirs: the day before a high-stakes Federal Reserve policy meeting in the middle of a financial market crisis. Even the title of his book, The Age of Turbulence, looks uncannily -- if not uncharacteristically -- prescient.
The turbulence to which Mr Greenspan refers in the title has two meanings: the wrenching change driven by the dynamic force of global capitalism and the bouts of dysfunction that periodically afflict the market mechanism that lies at its heart.
Mr Greenspan argues that these occasional crises are unavoidable, because they -- and the price bubbles that precede them -- are ultimately rooted in the human psyche and its propensity to lurch from euphoria to fear.
His book might equally have been entitled The Age of Disinflation. For the big theme of this work is how the triumph of laisser faire capitalism around the world over the past quarter-century delivered a golden period of low inflation, low interest rates and global prosperity.
Others credit Mr Greenspan, his predecessor Paul Volcker and other central bankers for the victory over inflation. Mr Greenspan, though, argues that there were deeper forces at work: global economic integration, the shift towards deregulated markets around the world and a revolution in technology.
The superhero in his story is capitalism. The central banker is only the sidekick -- not Batman, but Robin. It is a tale of Adam Smith's "invisible hand" of market co-ordination and Joseph Schumpeter's "creative destruction" at work.
Yet this is ultimately a book about political economy, not economics. Mr Greenspan talks about the fall of the Berlin Wall in 1989 as a defining economic development for the world -- the moment at which the bankruptcy of central planning was exposed for all to see. He also tells of how observing the difficulty of building a market system in its place led him to a richer sense of the legal, institutional and cultural foundations of capitalism.
The structure of the book is awkward. It is really two books -- an autobiography and a series of essays on the world economy -- stapled together.
The first 11 chapters that make up the autobiography are captivating. Born in 1926 -- before the Great Depression -- Mr Greenspan was a celebrated business consultant, worked on Richard Nixon's presidential campaign, served in the Ford administration as White House chief economic adviser and led a major reform of Social Security before joining the Fed, where he was chairman for 18 years.
In the course of telling his personal story, Mr Greenspan reminds the reader how great the shift in the economic context has been since the 1970s, when inflationary malaise seemed all but insurmountable to policymakers.
The style is clear, with few echoes of the magisterially ambiguous "Fedspeak" for which Mr Greenspan was renowned when in office. We learn how the boy who memorised baseball scores and railway timetables became the Fed chairman who saw in the micro-data evidence of a US productivity take-off in the mid-1990s and adjusted monetary policy accordingly -- arguably his greatest achievement.
A recurring theme is asset-price bubbles: equities in the 1990s, housing in the 2000s. This is no accident: the same underlying forces that pushed down inflation and interest rates simultaneously pushed up asset prices, providing the initial gains that encouraged later speculative activity.
One revelation is the extent to which Mr Greenspan says he did worry about and try to deflate both bubbles with early rate rises.
It was the failure of these efforts that convinced him a central bank should not try to burst bubbles.
There are insights into the "near-disasters" of the 1987 and 1998 financial crises. Throughout, he emphasises the resilience of the flexible US economy, which managed, for instance, to absorb the dotcom bust and the 9/11 terrorist attacks with only the shallowest of recessions.
A lifelong Republican, Mr Greenspan displays a deep-seated libertarian aversion to big government, yet admits that he came closest in recent years to finding his intellectual soul-mates in the Clinton administration.
He confesses that he was wrong to join the chorus of those who believed that there was a budget surplus to dispose of at the turn of the millennium. And he is scathing about the spendthrift ways of the Republican party after 2000 -- suggesting that it deserved to lose the 2006 midterm elections.
The 14 analytical chapters are more uneven. The country analysis is not by Mr Greenspan's standards earth-shattering; his discussion of the economics of global warming incomplete and unsatisfactory. By contrast, both his alarm over entitlement spending and relative lack of concern about current account imbalances are powerfully argued. He endorses the view that stagnation in average worker incomes in the US poses a threat to the political sustainability of deregulated markets.
At times he touches on the profound, asking why, for all capitalism's material success, we have not been able to rediscover the 19th century's optimism that free markets and free societies will bring a broader measure of human progress.
Perhaps unavoidably, given the scope of the book, its conclusion does not quite succeed in pulling all the strands together. We are left with his warning that the fundamental forces that delivered the era of disinflation are starting to abate. Mr Greenspan says inflation in the years to 2030 may be closer to the 4.5 per cent average from 1939 to 1989 than the lower rate of recent years.
Providing such a figure is not exactly helpful for his successors, who are trying to contain inflation expectations. But Mr Greenspan is trying to make a larger point: that the Fed will not be able to prevent a return to higher levels of inflation over the long run without the full support of the US public and its political representatives.
Ultimately, the decision to accommodate or resist the forces of inflation is taken not by a man, or by an institution, but by a nation.
........................................
FT Syndication Service
ALAN Greenspan chose the perfect moment to release his memoirs: the day before a high-stakes Federal Reserve policy meeting in the middle of a financial market crisis. Even the title of his book, The Age of Turbulence, looks uncannily -- if not uncharacteristically -- prescient.
The turbulence to which Mr Greenspan refers in the title has two meanings: the wrenching change driven by the dynamic force of global capitalism and the bouts of dysfunction that periodically afflict the market mechanism that lies at its heart.
Mr Greenspan argues that these occasional crises are unavoidable, because they -- and the price bubbles that precede them -- are ultimately rooted in the human psyche and its propensity to lurch from euphoria to fear.
His book might equally have been entitled The Age of Disinflation. For the big theme of this work is how the triumph of laisser faire capitalism around the world over the past quarter-century delivered a golden period of low inflation, low interest rates and global prosperity.
Others credit Mr Greenspan, his predecessor Paul Volcker and other central bankers for the victory over inflation. Mr Greenspan, though, argues that there were deeper forces at work: global economic integration, the shift towards deregulated markets around the world and a revolution in technology.
The superhero in his story is capitalism. The central banker is only the sidekick -- not Batman, but Robin. It is a tale of Adam Smith's "invisible hand" of market co-ordination and Joseph Schumpeter's "creative destruction" at work.
Yet this is ultimately a book about political economy, not economics. Mr Greenspan talks about the fall of the Berlin Wall in 1989 as a defining economic development for the world -- the moment at which the bankruptcy of central planning was exposed for all to see. He also tells of how observing the difficulty of building a market system in its place led him to a richer sense of the legal, institutional and cultural foundations of capitalism.
The structure of the book is awkward. It is really two books -- an autobiography and a series of essays on the world economy -- stapled together.
The first 11 chapters that make up the autobiography are captivating. Born in 1926 -- before the Great Depression -- Mr Greenspan was a celebrated business consultant, worked on Richard Nixon's presidential campaign, served in the Ford administration as White House chief economic adviser and led a major reform of Social Security before joining the Fed, where he was chairman for 18 years.
In the course of telling his personal story, Mr Greenspan reminds the reader how great the shift in the economic context has been since the 1970s, when inflationary malaise seemed all but insurmountable to policymakers.
The style is clear, with few echoes of the magisterially ambiguous "Fedspeak" for which Mr Greenspan was renowned when in office. We learn how the boy who memorised baseball scores and railway timetables became the Fed chairman who saw in the micro-data evidence of a US productivity take-off in the mid-1990s and adjusted monetary policy accordingly -- arguably his greatest achievement.
A recurring theme is asset-price bubbles: equities in the 1990s, housing in the 2000s. This is no accident: the same underlying forces that pushed down inflation and interest rates simultaneously pushed up asset prices, providing the initial gains that encouraged later speculative activity.
One revelation is the extent to which Mr Greenspan says he did worry about and try to deflate both bubbles with early rate rises.
It was the failure of these efforts that convinced him a central bank should not try to burst bubbles.
There are insights into the "near-disasters" of the 1987 and 1998 financial crises. Throughout, he emphasises the resilience of the flexible US economy, which managed, for instance, to absorb the dotcom bust and the 9/11 terrorist attacks with only the shallowest of recessions.
A lifelong Republican, Mr Greenspan displays a deep-seated libertarian aversion to big government, yet admits that he came closest in recent years to finding his intellectual soul-mates in the Clinton administration.
He confesses that he was wrong to join the chorus of those who believed that there was a budget surplus to dispose of at the turn of the millennium. And he is scathing about the spendthrift ways of the Republican party after 2000 -- suggesting that it deserved to lose the 2006 midterm elections.
The 14 analytical chapters are more uneven. The country analysis is not by Mr Greenspan's standards earth-shattering; his discussion of the economics of global warming incomplete and unsatisfactory. By contrast, both his alarm over entitlement spending and relative lack of concern about current account imbalances are powerfully argued. He endorses the view that stagnation in average worker incomes in the US poses a threat to the political sustainability of deregulated markets.
At times he touches on the profound, asking why, for all capitalism's material success, we have not been able to rediscover the 19th century's optimism that free markets and free societies will bring a broader measure of human progress.
Perhaps unavoidably, given the scope of the book, its conclusion does not quite succeed in pulling all the strands together. We are left with his warning that the fundamental forces that delivered the era of disinflation are starting to abate. Mr Greenspan says inflation in the years to 2030 may be closer to the 4.5 per cent average from 1939 to 1989 than the lower rate of recent years.
Providing such a figure is not exactly helpful for his successors, who are trying to contain inflation expectations. But Mr Greenspan is trying to make a larger point: that the Fed will not be able to prevent a return to higher levels of inflation over the long run without the full support of the US public and its political representatives.
Ultimately, the decision to accommodate or resist the forces of inflation is taken not by a man, or by an institution, but by a nation.
........................................
FT Syndication Service