Alan Greenspan may not have single-handedly saved the US economy in his 18
years as chairman of the US Federal Reserve, but presidents from Nixon to George
W Bush have had their economic and fiscal policies shaped or criticised by
the man who almost literally feels the economy in his fingers.
Greenspan’s memoirs, The Age of Turbulence: Adventures in a new world, makes
for a surprisingly good read. Part autobiography, part 20th century economic
history of the US, part thesis in support of free market capitalism and part
analysis of some of the biggest issues now facing the world economy, the mix
works well, offering an engaging and enlightening insight into the political
machinations of Presidential budgets and market crashes.
The young Greenspan, born of Romanian and Hungarian stock, was once given a
book written by his stockbroker father in which he had written an inscription
that was meant to be endearing and inspiring, but which was almost completely
indecipherable gobbledegook. The often self-effacing Greenspan concedes that
this is evidence that his “ability to give inscrutable testimony before Congress
must have been inherited”. The Fed doesn’t actually increase interest rates: it
gives “an asymmetric directive towards tightening”.
Ball park figure
As a boy, Greenspan loved baseball and was an avid collector of all the team
statistics. It helped him learn fractions and decimals though, as he admits, “I
was never as good converting fractions above four for ten, since few batters hit
Fortunately for the state of the nation, Greenspan abandoned a career as a
professional big band sax player (he once played with the legendary Stan Getz)
to devote himself to economic analysis. Of course, in the 1940s and ’50s, the
necessary statistics weren’t available, so Greenspan had to create them himself,
from scratch. For instance, he analysed the weights of military aircraft, worked
out the proportion of aluminium, copper and other metals in them, read
out-of-date Pentagon procurement reports and worked out the impact of the
still-raging Korean war on US industry.
A similar approach enabled him to forecast that a recession was on the way in
1958. In 1975 this discipline helped him at the Council of Economic Advisers to
create a weekly version of the quarterly GDP statistics to monitor the
recessionary effect of the first oil price shock, allowing the government to
react more appropriately to the emerging crisis.
He is a man who has accumulated a lot of experience of crises: Black Monday,
the collapse of the tiger economies, the collapse of the rouble, the collapse of
Long-Term Capital Management and, of course, 9/11. (In many of these cases, the
dilemma as to whether to bail out countries and financial institutions still
rings true today as the sub-prime crisis bounces around the world.) Then there
were the good times, such as the dotcom bubble and all the “irrational
exuberance” and grossly premature forecasts that went with them.
Greenspan must have dealt with more presidents than almost anyone else. The
intellectually superior two were Nixon (whom he regarded as such a deeply flawed
man that Greenspan declined to work for him after the 1968 election, five years
before Watergate) and Bill Clinton, a reassuringly smart president.
As for Reagan, Greenspan shares one of his jokes, which runs like this:
President Leonid Brezhnev is standing atop Lenin’s tomb, reviewing the May Day
parade. The full Soviet Union military might is on display. Battalions of elite
troops goosestep in all their uniformed splendour. They are followed by hundreds
of tanks and artillery. Then come dozens of nuclear missiles. And after the
missiles come… half a dozen shabbily-dressed civilians, shuffling along and
looking utterly out of place. An aide begs Brezhnev’s forgiveness: “Comrade
Secretary, my apologies, I do not know who these people are or how they’ve come
into our parade.” “Do not be concerned, Comrade,” replies Brezhnev. “I am
responsible for them. They are our economists, and you have no idea how much
damage they can do.”