The Age of Turbulence: Adventures in a New World by Alan Greenspan
Allen Lane, £25
ALAN GREENSPAN is regarded as the high priest of capitalism and is often credited with single-handedly averting recessions in the United States and steering the economy over there into calmer waters. He has had the ear of every US President since 1969 and, in 1987, was appointed chairman of the US Federal Reserve by Ronald Reagan. This 531-page book is, effectively, his memoirs with his assessment of the world economy including the rise of Russia, China, India and the other Asian economic tigers.
It is part autobiography, offering insights into how Greenspan interacted with policymakers and presidents. He says Gerald Ford was a decent man who knew and understood the economics he needed to know. Reagan was sometimes “oblivious of facts” but is still praised for the “clarity of his conservatism”. Bill Clinton was focused on long-term economic growth and, interestingly, there is no praise for the incumbent, George W Bush.
Greenspan was a key player in the expansion of Reaganomics and the rolling back of the state. Markets made some richer but the US also ended up with the widest income and wealth inequalities on the planet. He praises Thatcherite economic policies and offers his evaluation of former Prime Minister Tony Blair and the present Prime Minister Gordon Brown. Referring to a meeting in 1994 he says: “It appeared to me that Brown was the senior person. Blair stayed in the background while Brown did most of the talking about New Labour. Gone were the socialist tenets of postwar Labour leaders… Brown espoused globalization and free markets and did not seem to be interested in reversing much of what Thatcher had changed in Britain. The fact that he and Blair had arrived on the doorstep of a renowned defender of capitalism (namely, me) solidified my impressions.” Ah, well, most of us had worked that one out!
The second half of the book focuses on emerging economies, globalisation, budgetary deficits, education, income inequalities, economic and energy crises and issues about regulation. Though he does not say much about the crisis in subprime mortgages and consequent credit crunch, the seeds of our current troubles were, of course, sown during Greenspan’s stewardship of the Federal Reserve. Low interest rates was his preferred tool for regulating the economy. After 9/11, US interest rates stood at 1.75 per cent and declined further to 1 per cent in June 2003, a negative rate of interest in real terms. Greenspan’s cheap money fuelled the borrowing binge. In a light touch environment, companies devised exciting new ways of repackaging and selling on loans and mortgages. Growth in corporate profits was mistaken for real economic renaissance, but the risks of collapse of course increased. Greenspan was always quick to reject calls for tougher regulation of the finance industry.
So this free market guru played a significant part in the current crisis of capitalism in the US. He should have seen the dark clouds gathering as his light regulation approach encouraged an unprecedented speculative frenzy. In the early 1990s, such ideological leanings produced the Savings & Loan debacle, resulting in losses of billions of dollars. In 1998, he had to bail out Long Term Capital Management (LTCM), a hedge fund nominally based in the Cayman Islands and managed by – would you believe it? – Nobel Prize winners in economics. But Greenspan, the self declared “defender of capitalism” would not budge from his ideological crusade for the free market.
This book is entertaining and informative, although Greenspan shies away from a proper examination of his own policies. Nevertheless, the high priest of capitalism is doing very nicely, thank you. His reputed $8.5 million advance for writing this book and six figure sums for providing public lectures provide him with some home comforts. Meanwhile, the world economy has taken a turn for the worse and the rest of us are having to suffer for his manifest mistakes. The age of turbulence is well and truly with us.
Prem Sikka
