Greenspan's Memoir Looks Forward


Many will pick up the former Fed chairman's book for its attack on Republicans, but his thoughts on the future are equally compelling

Alan Greenspan's memoir, The Age of Turbulence, is much like his speeches—measured, thoughtful, with some powerfully provocative nuggets scattered throughout. So far what's gathered the most attention has been his disdain for President George W. Bush's economic policy and for the Republican politicians who ran Congress until 2006, a surprise given the ex-Fed chairman's deep Republican roots. Also striking is his willingness to say straight out that "the Iraq War is largely about oil."

Still, the book's ultimate impact will depend on the quality of the economic analyses and forecasts that make up its second half. And because Greenspan, 81, is the leading economist of our era, his view of the future makes The Age of Turbulence worth reading even beyond the immediate political implications.

The first half of the book traces Greenspan's path from a boy in New York City to preeminence as the head of the most powerful central bank in the world. In terms of his personal life, the liveliest anecdote is the account of his first date with Andrea Mitchell, who at the time was covering the White House for NBC News. "At the restaurant we ended up discussing monopolies," writes Greenspan. "I told her I'd written an essay on the subject and invited her back to my apartment to read it." High romance indeed!

Not According to Party Lines

The book makes very clear how closely Greenspan has been plugged into the Republican Party apparatus over the years, going back to Richard Nixon's Presidential campaign in 1967. From that perspective, it's understandable that he praises Ronald Reagan for "the clarity of his conservatism." What it is surprising is how highly he speaks of Bill Clinton, whom he calls "as far from the classic tax-and-spend liberal as you could get and still be a Democrat." Greenspan also compliments Clinton for having, unlike most politicians, "a preference for dealing in facts."

By contrast, Greenspan is dismissive of three Republican presidents. He refused to work for Nixon because of the dark side of Nixon's personality. George H.W. Bush, in Greenspan's view, did not have a "thoughtful view" about interest rates. And he is upset about George W. Bush's approach to economic policy: "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences," writes Greenspan. "'Deficits don't matter,' to my chagrin, became part of Republicans' rhetoric."

Greenspan reserves his maximum scorn for the Republicans in Congress who voted for big budget deficits. He writes: "The Republicans in Congress lost their way. They swapped principle for power. They ended up with neither. They deserved to lose."

Disdain and Regret

But equally important—and far less noticed—is Greenspan's disdain for academic economics. "As elegant as modern-day econometrics has become, it is not up to the task of delivering policy prescriptions," Greenspan writes. "The world economy has become too complex and interlinked." Indeed, academic economists are virtually nonexistent in the book. Greenspan's successor, Princeton University economist Ben Bernanke, is mentioned only once, in a caption to a picture.

Greenspan does not use his book as an opportunity to admit very many mistakes. One regret he does express is the way that his testimony in favor of the 2001 Bush tax cuts was interpreted, writing that, "while politics had not been my intent, I'd misjudged the emotions of the moment."

Greenspan acknowledges potential problems with subprime loans, but he argues that "the benefits of broadened home ownership are worth the risk." Greenspan writes: "Protection of property rights, so critical to a market economy, requires a critical mass of owners to sustain political support." In a television interview that aired on Sept. 16, however, Greenspan admitted that he didn't understand how deep the subprime problem was until very late in his term at the Fed.

Predicting Future Economies

In the second half of the book, Greenspan offers his take on the future of the domestic and global economies, covering topics such as "Russia's Sharp Elbows" (the title of Chapter 16), corporate governance, financial regulation, and the need for education reform. He provides no formal models or econometric projections. Rather, Greenspan brings to bear his accumulated institutional knowledge and sense of long-term patterns and human nature. "There is a degree of historical continuity," he writes, "in the way democratic societies and market economies function."

He gives globalization and financial markets far more attention than technology, despite his identification with the 1990s New Economy (a term, incidentally, he mostly stays away from). Greenspan is enthusiastic about the process of absorbing billions of workers in China and elsewhere into the worldwide market economy, which has not only benefited them, but held down inflation and interest rates in the developed world.

Moreover, the U.S. trade deficit does not distress him terribly. Instead, Greenspan says danger comes from the opposite direction: the inevitable slowdown of globalization. "The critical time for the world economic outlook and for policymakers will not be when the shifting of workers comes to an end," writes Greenspan, "but when its rate of increase starts to slow." That will likely trigger a rise in inflation and interest rates, especially because the federal government will be borrowing heavily to fund Social Security and Medicare. As a result, writes Greenspan, "sometime before 2030 the world is likely to be trading ten-year U.S. treasuries at a rate of at least 8 percent." That's almost double current levels, and a warning for investors that today's low-rate world will not last forever.

Most people will read Greenspan's book for the shock value of his attack on Republicans. But they also will find that Greenspan's well-informed musings offer much more food for thought than the usual government official memoir.

Mandel is chief economist for BusinessWeek.

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