Book review: The Age of Turbulence: Adventures in a New World by Alan Greenspan.
The first half of this book provides a decent history of the past 40 years, with a few special insights such as descriptions of how most presidents in that period worked (he’s one of the least partisan people to have worked with most of them). The second half is a discussion of economics of rather mixed quality (both in terms of wisdom and ability to put the reader to sleep).
He comes across as a rather ordinary person whose private thoughts are little more interesting that his congressional testimony.
One of the strangest sections describes the problems he worried would result from a projected paydown of all federal government debt. He does claim to have been careful not to forget the possibility those forecasts could be mistaken. But his failure to mention ways that forecasts of Social Security deficits could be way off suggests he hasn’t learned much from that mistake.
He mentions a “conundrum” of falling long-term interest rates in 2004-2005, when he had expected that rising short-term rates would push up long-term rates. I find his main explanation rather weak (it involves technology induced job insecurity leading to lower inflation expectations). But he then goes on to describe a better explanation (but is vague about whether he believes it explains the conundrum): the massive savings increase caused largely by rapid growth in China. I suspect this is a powerful enough force that Deng Xiaoping deserves more credit than Greenspan for the results that inspired the label Maestro.
The book is often more notable for what it evades than what it says. It says nothing about his inflationary policies in 2003-2004 or his favorable comments about ARMs and how they contributed to the housing bubble.
He gives a brief explanation of how Ayn Rand converted him to an Objectivist by pointing out a flaw in his existing worldview, but he is vague about his drift away from Objectivism. His description of the 1995 government “shutdown” as a crisis is fairly strong evidence of a non-Randian worldview, but mostly he tries to avoid controversies between libertarianism and the policies of politicians he likes.
He often praises markets’ abilities to signal valuable information, yet when claiming that the invasion of Iraq was “about oil”, he neglects to mention the relevant market prices. Those prices appear to discredit his position (see Leigh, Wolfers and Zitzewitz’ paper What do Financial Markets Think of War in Iraq?).
He argues against new hedge fund regulations on the grounds that hedge funds change their positions faster than regulators can react. He is right about the regulations that he imagines, but it’s unfortunate that he stops there. The biggest financial problems involve positions that can’t be liquidated in a few weeks. It seem like it ought to be possible for accounting standards to provide better ways for institutions to communicate to their investors how leveraged they are and how sensitive their equity is to changes in important economic variables.
He argues against using econometric models to set Fed policy, citing real problems with measuring things like NAIRU and GDP, but if he was really interested in scientifically optimizing Fed policy, why didn’t he try to create models based on more relevant and timelier data (such as from the ISM?) the way he did when he had a job that depended on providing business with useful measures? Maybe he couldn’t have become Fed chairman if he had that kind of desire.
I listened to the cd version of this book because I got it as a present and listening to it while driving had essentially no cost. I wouldn’t have bought it or read the dead tree version.