Alan Greenspan, in his own words
The man who once made global markets tremble reveals his true thoughts on America's economy.
As a boy in the 1930s, Alan Greenspan found fascination not in bankers but in the telegraph operators who were a staple in Western movies.Skip to next paragraph
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He and a friend named Herbie rigged up some key sets and practiced sending messages to each other in Morse code. "At crucial moments in the plot, they could call for help or warn of an impending Indian attack, as long as the lines hadn't been cut," Greenspan writes in his new memoir The Age of Turbulence. "Just knowing the code gave me the thrill of that world."
His book doesn't draw any parallel, but Greenspan would later become famous for speaking coded messages of his own.
As head of the nation's central bank from 1987 to 2006, he used often-obscure language to telegraph signals of comfort or alarm to power brokers in Washington and on Wall Street. His aura grew. Many Americans came to believe that he had cracked the economy's code.
Now we can all read the inside story, as narrated by the man himself. And thankfully, we find his narration free of arcane "Fedspeak."
Indeed, this book is less about the Fed, or even Greenspan himself, than about the economy that he has studied for decades. But those stories are all interwoven in an engaging manner.
"The Age of Turbulence" opens at a moment of crisis, the 9/11 terrorist attacks. In the uncertain days following the tragedy, Greenspan told a Senate panel that patience was in order. He said that advances in information technology, plus flexibility in labor and financial markets, have enhanced the economy's ability to cope with disruptions.
Within himself, Greenspan wasn't so confident. "If I had fully expressed what I thought the probabilities were [of additional terrorist attacks], I'd have scared the markets half to death. I realized I probably wasn't fooling anybody, though: people in the markets would hear me and say, 'I sure hope he's right.' "
Follow-on acts of terror or sabotage didn't come, and the economy did cope with the considerable challenges it already had. "What I'd said so optimistically to the Senate Banking Committee turned out to be true," Greenspan writes.
This adaptive vitality of free markets becomes a theme that echoes throughout the book. Greenspan does recount personal successes, such as overseeing a rare "soft landing" in 1995, in which the Fed raised interest rates without any ensuing recession.
He also offers his account of some actions that have been criticized. He recalls feeling disbelief when Democratic Sen. Kent Conrad (D) of North Dakota and former Treasury Secretary Robert Rubin warned that his planned testimony on fiscal policy early in 2001 would be interpreted as a blanket endorsement of President Bush's proposed tax cuts. "It turned out that Conrad and Rubin were right," Greenspan writes.
(He defends his proposition that tax cuts were warranted at a time when large budget surpluses were forecast. But he wanted to see tax cuts accompanied by triggers to ensure fiscal discipline.)
And this book dishes out some criticism of other power brokers. Greenspan takes his own Republican Party to task for abandoning fiscal discipline during this decade, as those forecasts of surplus have turned into government deficits.
Yet, in keeping with his libertarian views, he returns frequently to the virtues of free markets.
In the Reagan administration, Greenspan worked for a time analyzing the Soviet economy. He relates that the Reagan arms buildup was a conscious test of two systems, based on the notion that the centrally planned Soviet economy couldn't keep up.
Greenspan doesn't pretend that all debates about capitalism have ended. For example, he says: "One can seek material well-being and yet view competitive markets as subject to excessive manipulation by advertisers and marketers who trivialize life by promoting superficial and ephemeral values." But he says free markets have won hands down over central planning.
Half the book is memoir, and half is a forecaster's look at major issues facing the world economy.
Greenspan enjoys a generally sterling reputation among economists.
Still, this book doesn't deflect all criticisms of the former professional saxophonist who came to be called "the maestro."
Beyond the question of specifics in his testimony on tax cuts or other issues, was Greenspan more prone to making politically charged pronouncements than a Fed chairman should be?
And on policy, did the Greenspan-led Fed end with a period of too-easy money and a too-easy attitude toward the rise of risky "exotic" mortgages, which contributed to an overblown housing boom – and now a painful housing bust?
These questions don't have simple answers, but these are two areas where it's likely Greenspan could have done better.
This doesn't detract from his notable achievements. And no Fed chairman is held to a standard of infallibility. The difference with Greenspan is that somehow he acquired a mystique that few of his Fed peers ever do.
He presided over an era when the economy's arch-enemy of inflation was on the run partly because of global forces. Several billion formerly communist workers flooded into world labor markets, and helped hold prices in check.
Greenspan notes that his successors may face a tougher time. He cautions that unless future Fed policymakers retain their mandate to keep inflation in check, the interest rate on 10-year Treasury bonds, now below 5 percent, could hit double-digits.
This book, as a whole, sounds a useful warning against that sort of "age of turbulence."
• Mark Trumbull is a Monitor staff writer.