Alan Greenspan's The Age of Turbulence - a book review

For better or worse, I've been reading The Age of Turbulence by Alan Greenspan. The book is quite remarkable in several respects, not the least of which is what is left out. Were there no true personal conundrums to be faced during his 14 year tenure at the Fed? Personal friends who asked for favors, and had to be turned down? Legal but ethically questionable conflicts of interest that may have even taken Mr. Greenspan by surprise? Having to deal with friends directly and seriously affected by his own decisions? All of these questions are unanswered, and it's hard to believe that "Mr. Chairman" didn't step on any of his (very) powerful friends toes in all of those years.

In truth, I can't help but admire the man. He presents himself as fundamentally a technician, something that I find very easy to believe. That this lower-middle class Jewish kid from Brooklyn rose to be one of the most powerful men in the nation makes for stunning revelation in it's simplicity: you just have to be a genius, psychologically stable, and have an interest in something powerful people also have an interest in, money. It doesn't even seem to require any ambition: apparently, with these ingredients, positions of ever increasing influence and power will simply be offered to you. And while some readers may think the same thing with irony, I do not. I believe that Greenspan is an idealist, and humble in his single-minded pursuit of the perfection of his econometric models, and worldly success to him is, at best, a happy side-effect of his interest.

The sheer lack of shrillness in his book speaks highly of his character. True, some sections sound a bit defensive (such as those describing his infamous address to Congress regarding the 2001 Bush Jr. tax cut). But over all, here is a guy who truly believes in the value of capitalism, and doesn't shy away from expressing opinion, but takes care to do so in a way grounded in observable fact. I think that's good.

He makes a very good point toward the end of the book, that the more perfect a market, the more stress "creative destruction" creates for people. And yet this is the price we all pay for increasing material affluence. He makes the further point that some cultures choose less material affluence in return for less stress - citing Germany as one example. Greenspan's personal bias clearly seems to be for "more stress, more materialism" but I'm glad that he lays out the choice so clearly.

Of course, reading this book can't help but make me think about financial markets, and why Greenspan is constantly talking about making them more "flexible". I can't help but think he's been influenced by brokerage firms who make money in proportion to fluidity of markets. I mean, these firms make money on every dollar transfer from point a to point b, right? Therefore, it's in their best interest to keep money moving from point a to point b, then back again, and then back again.... So there's an incentive to do even more "creative destruction" than is strictly necessary, just to make money on the transfers of vast wealth. I read the book quite carefully and never heard this question answered.

The book fails for the lay reader (like me) by getting a bit too technical. Some of the terms I am unfamiliar with, as well as some of the dynamics he sites. But even so one gets a sense of the thought process behind a US$300m/year enterprise (The Federal Reserve) who's primary work is to produce a single number (the long term federal interest rate) every month. I would have liked more of a backgrounder on certain topics, maybe not even in the narrative but in a side bar or even an accompanying website.

I find it remarkable how homogenous Greenspan sees the world. He can abstract whole nations (and their histories) as a set of numbers: GDP, per capita income, productivity levels, exchange rates, authoritarian/democratic, etc. This kind of analysis is so relentless in the book, and I can't help but feel a kind of pull of simplicity - maybe the world isn't such a big, unfathomable place after all! Maybe it can all be understood (at the right level of abstraction) in a way that really matters. And yet, on the other hand, such homogeneity seems to presuppose a globalization process that has already completed - in Alan Greenspan's head.

Globalization is one of those contentious issues that Greenspan addresses briefly, but for the most part takes as an assumed worthy goal. This is easy to understand coming from an ardent Objectivist (he attended Ayn Rand's funeral). He never specifically addresses the workplace problems in third world countries creating textiles, for example.

Another contentious issue is whether or not the world really has gotten better as the result of capitalism. This is not a point of fact that is universally accepted, and yet Greenspan presents it without much evidence. Frankly, my personal inclination is that he's right, but time and time again I've discovered that my anecdotal experience cannot be relied upon to present an accurate global picture! From one very smart person, for example, I've even heard it claimed that the "dark ages" weren't really that dark, and that peasants actually had it pretty good. That seems possible to me, but since it goes against the mainstream it kind of requires a bit of proof.

There's a claim in the book that populist measures don't work. Now, I agree with that just because it seems like history shows it to be true. However, I'm not sure if I buy the explanation: that if you fix an imbalance in one area that you create several imbalances elsewhere. If that holds true for macro economics, why doesn't it hold true for individuals? And if it holds true for individuals, doesn't this mean that we shouldn't ever try to help people, including ourselves, for fear of generating other imbalances in the system? In other words, the fear of taking action because of inadvertently created imbalances seems to be a more general principle.

Greenspan makes a big point that the collapse of the Soviet Union showed empirically that centrally planned economies do not work. I would be curious to know how information technology could be used to potentially solve the problems that plagued central planning. I would have liked Greenspan to address this intriguing possibility.

My overall reaction to this book was quite mixed. Intellectually I found it quite stimulating and interesting - I've always wondered "where the money goes" when I deposit money into the bank, and get a bit cross-eyed when I hear financial news, and this book shed a bit of light on how the game is played at the highest levels. And yet, I can't help but notice the mild depression that hit me as I was reading the book. I'm not sure exactly what caused that - perhaps it was watching as a brilliant man retold his entire long eighty year life mostly in terms of numbers and endless meetings wearing a suit and tie. Greenspan doesn't like the noisy music of the 20th century, and yet that's the culture he helped to create. Could Schumann have lived today? Is it possible to put a dollar amount on peaceful, slower-paced living? What irony that Greenspan is advocating the acceleration of a world in which his favorite art forms could never have been created.

How can capitalism go wrong? Check this out:

No comments: