The Age of Turbulence: Adventures in a New World
by Alan Greenspan
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Book Summary Information
Author: Alan GreenspanEdition: Paperback
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2008-09-09
ISBN: 0143114166
Number of pages: 576
Publisher: Penguin (Non-Classics)
Book Reviews of The Age of Turbulence: Adventures in a New World
Book Review: Encyclopedic first hand account of economic history.
Summary: 5 Stars
This book is so interesting. During his near 20 year tenure as Chairman of the Fed, we did not know what he thought. Now, we do. Instead of speaking through his cryptic Fed-speak, he expresses himself in clear prose. His mind set (free markets and deregulation) seems now antiquated. But, it will return in favor. This is the best finance type autobiography since Robert Rubin In an Uncertain World: Tough Choices from Wall Street to Washington.
This book has four parts:
1) An autobiography;
2) An outlook of major countries;
3) Investigation of crucial economic issues such as rising income inequality; and
4) An economic forecast till 2030.
Greenspan is an original individual who has lived a full life. He was a professional musician. But he soon developed a yearning for data. He was influenced by Ayn Rand objectivism and by Joseph Schumpeter's "creative destruction." In 1953, he co-founds a succesful economic consulting firm Townsend-Greenspan (TG). He becomes an early expert in econometrics modeling, and gets a PhD in economics from NYU in the late seventies.
Greenspan met all the Presidents since Nixon. He thought Nixon was very smart but paranoia. He liked Ford and thought he was much smarter than the Media conveyed. He had no relationship with Carter. He liked Reagan, as they shared a free-market philosophy even though they were different. Reagan was the master of the soundbite while Greenspan is a technocrat. In 1981, Reagan appoints Greenspan to chair the Greenspan Commission to shore up Social Security. This was a success of bipartisan politics as in 1983, the Social Security program was shored up and deemed to remain solvent until 2050. He had a cold relationship with George Bush Sr. as the latter felt monetary policy was too tight and ultimately cost him an election.
He had a great relationship with Clinton. Both men played the sax. Greenspan also got along with Robert Rubin, Treasury Secretary, and Lawrence Summers, Assistant Treasury Secretary. The three will engineer the successful 1994 Mexican loan bail out. The Bush Jr. administration turned out differently from the reincarnation of the Ford administration. Now politics dominated pragmatism. Partisanship made governance dysfunctional.
Greenspan met many foreign leaders including Yeltsin. He thought he was smart and when sober. He also met British leaders including Thatcher, Blair, and Brown. He was very impressed by Thatcher and Brown. He met Sarkozy when he was finance minister just before becoming France's President.
His objective as Fed Chairman was "maximum sustainable long-term growth and employment." Greenspan explains why pricking stock market bubbles is risky: "The risk in clamping down during a stock-market surge is especially acute-it can pop the bubble of investor confidence, and ... can trigger a severe economic contraction." Later he explained how he developed an alternative: raising rates by only 25 bp more frequently to preempt inflation.
Greenspan notices the onset of the housing bubble in the rapid home price appreciation since 2002. He attempts to slow it down by increasing the Fed Funds rate by 350 bp between the end of 2003 and beginning of 2006, when he retires. In 2006, 40% of home mortgages were either Subprime or Alt-A. Those will be associated with the credit crisis. The latter was more due to credit underwriting than monetary policy.
In the next part, Greenspan analyzes the economic status of the World's countries. This part compares evenly with David Smick's The World Is Curved: Hidden Dangers to the Global Economy and Fareed Zakaria's The Post-American World. He sees the EU as the archetype slow-growth welfare state-capitalism.
He states Japan suffered two decades of stagnation because of its inability to resolve their insolvent banks. China is a perplexing mixture of communism and market capitalism. He thinks it will become more democratic and its economic system will resemble Europe. This is after China improves its inefficient banking system. Hong Kong, Taiwan, Korea, and Singapore all fully recovered from the Asian currency crisis of 1997. And, they moved up the curve to exporting increasingly sophisticated goods.
India has to overcome huge handicaps. Only 1.5 million Indians are employed in the outsourcing information sector. 2/5th of its population is illiterate. 250 million Indians still live on less than a $1 a day. Half of India's homes have no electricity. The infrastructure is decripit. The electricity grid is inadequate. Labor laws, property rights, and bureaucracy are not supportive of market capitalism.
Moving on to Russia, he observes Putin's effort to fully control its governance and economy. Russia economy has succeeded solely due to rising energy prices as its economy is not diversified.
In the third part, moving on to complex issues he first addresses the U.S. Current Account Deficit (CAD). He states the CAD is due to the U.S. rising productivity and a decline in foreign investors risk premium when investing in the U.S. Those factors caused the U.S. to run huge net capital inflows which by definition equal CADs. This subject is well covered in Martin Wolf Fixing Global Finance (Forum on Constructive Capitalism). Moving on to globalization, Greenspan confirms Smick's analysis in "The World is Curved." Globalization has increased living standards worldwide. But, it is vulnerable to backlashes of populism, protectionism, and regulations.
Next, Greenspan explains the "conundrum" whereby the Fed does not control long term rates by manipulating Fed Funds. They respond instead to the huge inflow of funds (capital surplus associated with the CAD).
The rising income inequality in the U.S. is due to a shortage of highly skilled labor. He recommends increasing immigration of the highly skilled and increasing the pay of math school teacher to boost the supply of the highly skilled.
Addressing the fiscal liabilities of Social Security and Medicare, he confirms the findings of Kotlikoff in The Coming Generational Storm: What You Need to Know about America's Economic Future. Those programs are not sustainable as currently funded. Taxes will have to be increased; benefits will have to be curtailed or a combination of both.
Addressing long-term energy prospect, he states: "none of the tight balance between supply and demand is due to any shortage of oil in the ground. The problem is that ... those who would like to invest (private sector international companies) cannot find profitable investments, and those who can invest (national companies) choose not to." Thus, there is no shortage of oil reserves but shortages of production and refining capacity. He anticipates nuclear energy will emerge as the scalable clean energy source. He also concurs with Bryce Gusher of Lies: The Dangerous Delusions of "Energy Independence" that energy independence is a Utopian political construct. We will rely on oil as long as we can.
Regarding the 2030 forecast, Greenspan sees the U.S. economy growing at 2.5% p.a. (2% productivity; 0.5% growth in labor force). He anticipates long term rates to increase due to the high fiscal needs worldwide to finance social entitlements (retirement and health care benefits). Read also Global Aging and Financial Markets: Hard Landings Ahead (CSIS Significant Issues Series) (Csis Significant Issues Series) on the subject.
Summary of The Age of Turbulence: Adventures in a New World
The Age Of Turbulence is Alan Greenspan?s incomparable reckoning with the contemporary financial world, channeled through his own experiences working in the command room of the global economy longer and with greater effect than any other single living figure. Following the arc of his remarkable life?s journey through his more than eighteen-year tenure as chairman of the Federal Reserve Board to the present, in the second half of The Age of Turbulence Dr. Greenspan embarks on a magnificent tour d?horizon of the global economy. The distillation of a life?s worth of wisdom and insight into an elegant expression of a coherent worldview, The Age of Turbulence will stand as Alan Greenspan?s personal and intellectual legacy.
In the immediate aftermath of September 11, 2001, in his fourteenth year as Chairman of the Federal Reserve Board, Alan Greenspan took part in a very quiet collective effort to ensure that America didn't experience an economic meltdown, taking the rest of the world with it. There was good reason to fear the worst: the stock market crash of October 1987, his first major crisis as Federal Reserve Chairman, coming just weeks after he assumed control, had come much closer than is even today generally known to freezing the financial system and triggering a genuine financial panic. But the most remarkable thing that happened to the economy after 9/11 was...nothing. What in an earlier day would have meant a crippling shock to the system was absorbed astonishingly quickly.
After 9/11 Alan Greenspan knew, if he needed any further reinforcement, that we're living in a new world - the world of a global capitalist economy that is vastly more flexible, resilient, open, self-directing, and fast-changing than it was even 20 years ago. It's a world that presents us with enormous new possibilities but also enormous new challenges. The Age of Turbulence is Alan Greenspan's incomparable reckoning with the nature of this new world - how we got here, what we're living through, and what lies over the horizon, for good and for ill-channeled through his own experiences working in the command room of the global economy for longer and with greater effect than any other single living figure. He begins his account on that September 11th morning, but then leaps back to his childhood, and follows the arc of his remarkable life's journey through to his more than 18-year tenure as Chairman of the Federal Reserve Board, from 1987 to 2006, during a time of transforming change.
Alan Greenspan shares the story of his life first simply with an eye toward doing justice to the extraordinary amount of history he has experienced and shaped. But his other goal is to draw readers along the same learning curve he followed, so they accrue a grasp of his own understanding of the underlying dynamics that drive world events. In the second half of the book, having brought us to the present and armed us with the conceptual tools to follow him forward, Dr. Greenspan embarks on a magnificent tour de horizon of the global economy. He reveals the universals of economic growth, delves into the specific facts on the ground in each of the major countries and regions of the world, and explains what the trend-lines of globalization are from here. The distillation of a life's worth of wisdom and insight into an elegant expression of a coherent worldview, The Age of Turbulence will stand as Alan Greenspan's personal and intellectual legacy.
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