Bill Emmott - International Author & Adviser


The Age of Turbulence: Book review
Sunday Times - September 30th 2007

The Age of Turbulence: Adventures in a New World. By Alan Greenspan Allen Lane £25 pp531

The common image of Alan Greenspan is of a brilliant but rather nerdy man, who as the world’s most important central banker developed convoluted, ambiguous language into an art form. Famously, when a listener to one of his speeches began a question by saying “If I have understood you clearly, Mr Chairman”, Greenspan answered wryly that if the listener had understood him clearly then he hadn’t been doing his job properly. And yet, as this admirably lucid and readable memoir-cum-treatise shows, the chairman of America’s Federal Reserve Board from 1987 to 2006 is as talented a communicator as he is an economist and a policymaker.

In fact, the image was always misleading. This grey nerd had his first full-time job as a saxophone player, dated Barbara Walters, the star TV anchorwoman, for many years, and counts a long list of celebrities among his friends. His intellectual mentor, a Russian-American libertarian called Ayn Rand, nicknamed him “the Undertaker” because of his serious demeanour and dark suits, and he is certainly a man who is happiest exploring high intellectual pursuits, yet he also has an appealing grin and a sense of humour sometimes reminiscent of Woody Allen.

Moreover, any journalist who visited Greenspan at the Fed in Washington DC found him accessible, charming and remarkably helpful. He would invariably speak off the record, but his descriptions and explanations of the current state of the American and global economies were always both revealing and penetrating. From his early days as an economist in New York in the 1950s, he has specialised in poring over the minutiae of data, gleaning conclusions from steel inventories or vacuum-cleaner output, yet he also has a fine grasp of the bigger picture, of why things may be happening as well as where they may be heading.

Timing and luck, though, are as important for the central banker as for the baseball players who gave him his first boyhood interest in statistics. Greenspan was able to build his credibility as Fed chairman only months after taking the job from Paul Volcker, when in October 1987 the New York stock market lost more than 20% of its value in a single day. He proved to be cool under pressure, a judicious communicator, and clear-minded about the need for an immediate cut in interest rates and an injection of money to calm the markets down. The Bank of England’s governor Mervyn King, who in brainpower and economics knowledge is Greenspan’s equivalent, fell down over the Northern Rock affair this month on all those counts: his communication was clumsy, and his policy reaction was confused and indecisive.

Greenspan’s timing with his memoirs is also fortunate: they have appeared just when interest in financial turbulence is at its height, which must delight his publisher, which reportedly paid him $8m (£4m) for the book. That very turbulence may, however, end up damaging his own reputation, for having left his job only last year he cannot avoid sharing some of the blame. Once he became convinced during the 1990s that fast productivity growth and the flexibility of the American economy meant that risks could be taken with inflation, he always chose to err on the side of low interest rates and loose monetary policy.

Many critics thought that having warned of “irrational exuberance” in 1996, he should have used dearer money to restrain the dotcom boom on the New York stock market that ended in a bust in 2000. Thankfully avoiding the technical discussion on whether central banks should take asset prices into account when setting monetary policy, a discussion of which economists are inordinately fond, Greenspan argues convincingly that such a policy would not have worked unless he had used truly draconian measures. In the end the consequences of the bust were gentle, even when it was followed by the terrorist attacks of September 11, 2001: America had a slowdown but no slump. That, though, was largely because the Fed responded by slashing interest rates. In effect, the American economy was rescued by the resulting boom in house prices, which made their owners feel richer and able to carry on spending.

As Greenspan acknowledges in The Age of Turbulence, that boom — combined with lax lending standards in many financial institutions — is what led to the collapse in the “sub-prime” (high risk) mortgage market in America over the past few months, and to the generalised credit crunch to which Northern Rock fell victim across the Atlantic. Lax lending standards are not his fault, nor is the drive by banks to create ever more complex and obscure types of debt securities that has now led to a breakdown in trust in the money markets.

He makes abundantly clear, too, that he thinks George Bush’s administration mishandled its side of economic policy by cutting taxes sharply without restraining public spending, though he foolishly allowed himself to be used in the campaign for those very cuts. Despite being a lifelong Republican, Greenspan plainly admired Bill Clinton far more as a president than he does Bush. But if the current problems do result in a severe recession in America and Britain, historians may well conclude that Greenspan’s Fed was also guilty of solving the problems of 2000-01 by deferring and consequently magnifying them. It is too soon, however, to be sure about that conclusion.

For a man who was more or less beatified by financial markets and commentators all over the world, Greenspan presents himself in these memoirs in an agreeably modest manner, stressing how unsure he is about many things in economics and public policy. The book is really two in one, though they fit together quite smoothly: the first half is autobiographical, giving an engaging account of the author’s life and of America’s economic course during the past 50 years; the second is thematic, giving Greenspan’s view of how the world now looks and works, along with some tentative predictions of what things might be like in 2030.

Both parts are worth reading, but surprisingly the memoir turned out to be more interesting to this reviewer than the thematic chapters. Saint Alan’s role and relationships are compelling, but his analysis of issues such as China’s problems, India’s prospects, Latin American populism and the different varieties of capitalism is less so. That part of the book feels more hurried, and less deeply researched, than is the memoir. But perhaps, as Greenspan might say, that is because when telling his own story the author has a tighter grip on the data.


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