Book Review: Age Of Turbulence: Adventures in a New World by Alan Greenspan

Alan Greenspan’s opus begins with his childhood in the Washington Heights neighborhood of Manhattan, but I doubt that many readers opened the book hoping to learn more about the small details of his upbringing. Do you want to know about his experience as a saxophonist, or how he was turned on to economics? This is Alan Greenspan we’re talking about. For nearly twenty years he was the most important regulator in America. A word from Greenspan could send the markets reeling. We want to know what he thinks, not how he spent his formative years.

Perhaps Greenspan understood the spirit in which readers would approach his book. He breezed through much if the exposition in the first chapter.

An incident that was very influential in Greenspan’s economic philosophy was his acquaintance with Ayn Rand. He tells the story of meeting Rand and participating in her “Collective”. In an early discussion, Greenspan made the mistake of making a weak argument about logical positivism that Rand easily dismantled. This story, I suppose, was intended to illustrate Rand’s superior intelligence, but instead it illustrated Greenspan’s need to better examine his arguments.

Greenspan calls himself a Libertarian, and he was attracted to Rand’s championing of laissez faire economics. Nonetheless, he was unable to carry the banner of Objectivism because of the inherent contradictions in the philosophy. He particularly objected (no pun intended) to the Randian precept that taxation was a form of theft, because government took part of citizens’ income by force. Greenspan at least accepted that there are essential functions of government that need to be financed, including protection of the private property rights that Rand believed were of paramount importance. “The Randian answer, that those who rationally saw the need for government would contribute voluntarily, was inadequate. People had free will; suppose the refused?” (pg 52). His level-headed resistance of draconian and extremist philosophies is why he was eventually able to move beyond esoteric writing and become a policy maker.

As always when I read the works of proponents of laissez fair capitalism, I find myself agreeing on almost everything, but the points with which I disagree are very important. Those disagreements tend to get my blood boiling, as it seems like pertinent facts are skimmed past or dismissed, and the laissez faire worldview is taken by the writer as a matter of course. I had the same experience reading Ayn Rand, and I had to repeatedly remind myself that I agreed with her on many points. The urge to throw the book across the room was overwhelming.

The theme of Age of Turbulence is “creative destruction.” The term, coined by Harvard economist Joseph Schumpeter, refers to the constant change, turmoil, and innovation in capitalist economies. (p. 48) Old businesses fail, and new ones sprout up on their wreckage. It is the spur of creative destruction that has propelled the American economy beyond all competitors. The problem with creative destruction, as you have probably already guessed, is that for many it is only destruction. Lower-level workers have no say in the decisions of management, yet they feel the greatest impact of economic upheaval.

What is to be done about the masses of destitute people as they endure the “destruction” side of capitalism? Greenspan takes an approach that echoes George W. Bush’s “compassionate” conservatism. Conservatives are just as compassionate to the poor as liberals, but conservatives do not see aiding the poor as a function of government. But private charity has never been able to make a significant dent in poverty. Without the intervention of government, what will happen to those who fall through the cracks? I suppose it is their duty to die, so we don’t have to be bothered by them anymore. No, surely Greenspan wouldn’t put it that way. I’m sure he believes that conservative economics will create enough wealth that the poor will be taken care of. Unfortunately, in the real world, Conservative economics tends to allow new wealth to collect at the top, and those with all the resources are able to change the rules of the political game in their favor. I have always suspected that Libertarianism and Conservatism housed the undead corpse of Social Darwinism. Though Greenspan doesn’t advocate Social Darwinism specifically, he does cite Herbert Spencer, the founder of that defunct philosophy, as the intellectual godfather of the pre-Progressive period. (pg. 278-279) It was under Spencer’s moral rationalization that the laissez faire era of American economics, which Greenspan praises, was established.

The free-market absolutists, like Milton Friedman, Ayn Rand, and Greenspan, have what I can only describe as a religious faith that the markets will work all things out for the good. In the laissez faire universe, monopolies are not so bad—Greenspan even wrote an essay for Rand on the subject (I am not sure what color the sky is in their universe, but I am guessing it is green,—anything but Communist red!). What keeps businesses from exploiting their customers and sacrificing the common good for their own gain? Greenspan’s answer is reputation. As an illustration, he brings up the old and widely-held adage that all used-car salesmen are crooks. This would go contrary to his belief that a company’s need for a good reputation will prevent it from ripping of its customers. His retort that “in truth a flagrantly unscrupulous used-car salesman is one who will be out of business before long” makes it apparent that he has not bought many used cars in his life. (pg. 257)

See, I get carried away with the points of disagreements. I must give Alan Greenspan his due.

He is exceptionally brilliant. His mind for mathematics and the minutia of finance far surpasses most of his critics. He is correct that free markets are much more efficient at distributing resources than planned economies. The principles by which he judges events are based on extensive experience. Even those who disagree with his principles must give him that.

The book provides a fascinating insight on how policies are formed at the highest level. He recounts one of the most difficult times in America since the Great Depression: the stagflation of the 1970s and 80s. The old Keynesian models had failed, and the Ford administration was searching for answers. In a golden moment in which the differences between politics and policy were shown at their most stark, a Ford speechwriter introduced the Whip Inflation Now campaign (WIN). (pg. 66) Millions of little “WIN” buttons had been printed up. Summits and task forces were planned to talk about inflation. The whole approach was weak and laughable. The president’s staff was clearly more concerned with appearances than substance. “It was surreal”, writes Greenspan, “I was the only economist present, and I said to myself, this is unbelievable stupidity. What I am doing here?” (pg. 66)

Though Greenspan is a Republican, he gives the Democrats their due credit. He applauds Carter for taking the right action, deregulating industry and appointing Paul Volcker as Chairman of the Federal Reserve. Unfortunately, the effects of those actions were too slow to do Carter any good, and he was defeated by Ronald Reagan. Volcker conquered inflation by doing what most politicians were afraid to do: choke off the money supply. The economy went into a deep recession, with unemployment rates shooting up to nearly 11 percent. “In early 1980, letters from people who’d been put out of work flooded Volcker’s office.” (pg. 86) It is unclear whether Greenspan felt any sympathy toward the people whose livelihood was destroyed for the sake of the country’s overall economic wellbeing. One suspects that his mind was more occupied with all the money lost at the time, but I’ll give Greenspan the benefit of the doubt.

Throughout the 1980s, the federal government went through money like it was water, waging the Cold War and cutting taxes on the rich. Reagan is now, I think, justly credited for defeating Communism, but he did so by charging the war to the nation’s credit card. By the 1990s, it was time to put things back in balance. Greenspan admits: “the hard truth was that Reagan had borrowed from Clinton, and Clinton was having to pay it back.” (pg. 147) When Greenspan met with the newly elected president, he was impressed by the younger man’s interest in the details of economics. Clinton listened intently as Greenspan spelled out the problem of the budget deficit. “Clearly, for sheer intelligence, Bill Clinton was on par with Richard Nixon,” the Fed chairman noted. (pg. 144).

The conversation with Greenspan, along with Bill Clinton’s tendency toward fiscal conservatism, led the president to focus on deficit reduction, almost to the exclusion of all else. This may come as a shock to those who get their news from Fox, but Bill Clinton was never the radical liberal that he was portrayed as being by the right wing media machine. As a result of Clinton’s single-mindedness on deficits, he was able to achieve surpluses well before anyone would have dared hope.

Have you noticed a pattern? Greenspan believed Richard Nixon was one of the most intelligent presidents he met, but Nixon was not nearly as fiscally conservative as later Republican presidents. Though he thought Gerald Ford was amiable and likeable, his approach to fighting inflation was “stupidity”. Greenspan credits Carter for regulation reform and taking the appropriate steps to defeat inflation, even at the expense of Carter’s re-election. Ronald Reagan’s politics was much more in line with Greenspan’s, yet the increase in spending (which was as much a result of Reagan’s Cold War tactics as the domestic spending by Congress, despite conservative revisionist history) flies in the face of Greenspan’s precept of small government. When Bill Clinton came around, Greenspan found him highly intelligent, and intent on eliminating the deficit.

Why is this guy a Republican?

The answer is because he is a Libertarian, and Libertarianism is a philosophy based on natural law. Natural law is a shortcut, a way for a philosophy to justify its tenants based on some outside force that transcends the consequences of those tenants. Even though the economy has done better under Democrats than Republicans since Herbert Hoover, the natural law of Libertarianism insists that certain core principles be maintained, despite their effects on actual human beings. One of those core principles is unfettered capitalism. The Republicans share, or at least pay lip service, to the same principles that Libertarians hold as absolute truth.

I have always argued that, though many of Libertarianism’s core values are very good in principle, the real world does not confine itself to absolutes. When faced with reality, most adherents to absolutist philosophies will chose reality over rhetoric. Common sense generally wins out. That is how a former-Randian Libertarian like Alan Greenspan can become a federal bank regulator without blushing. It is when ideals fail to give way to facts that unfortunate consequences result. It is for this reason that Greenspan was troubled by his encounter with George W. Bush.

Bush is similar to Greenspan in that he does not believe in government intervention in the economy. They differ in that Greenspan is pro-market, while Bush is pro-business. Bush had a plan based on Neoconservative concepts, and he had no intention of altering the plan to fit the actual circumstances when he took over the White House. Bush confused credibility with mere consistency. By doing exactly what he promised to do in the campaign, Bush believed he was being predictable in a way that would be seen as credible. “Their stance was ‘this is what we promised; this is what we’ll deliver,’ and they meant it quite literally. Little value was placed on rigorous economic policy debate or weighing of long-term consequences.” (pg. 217)

In the blink of an eye, the Clinton surpluses vanished.

It is telling that Greenspan has a less favorable view of George W. Bush’s economic policies than those of his predecessor. One would expect that Greenspan would be a natural ally of the Republican president. In book after book, former insiders in the Bush White House have given us the image of a president who stubbornly sticks to false assumptions, and who bludgeons through delicate problems in a ham-fisted way. Richard Clarke paints a similar picture regarding the war on terror.

There is so much to Alan Greenspan’s life that is difficult to condense it into a short review like this. His book is 505 pages, and it doesn’t feel like much of it could be cut out. It’s all here, from his cryptic addresses to Congress to his “irrational exuberance” speech. In Age of Turbulence, he has given us a kind of tell-all book. A very nerdy tell-all book. Reading the story of his life and his thoughts on politics and the economy gives the reader a deep appreciation for his technical knowledge. Even if you disagree with Greenspan, you would still want someone as intelligent and well-studied in charge of the country’s monetary policy.

© 2008 Bryan Lower

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