Tuesday, October 23, 2007

The Age of Turbulence

Alan Greenspan was the Chairman of the Federal Reserve from 1987 to 2006. Before that he was Chair of the Council of Economic Advisers under President Ford and an adviser to Presidents Nixon and Reagan. In my opinion no other single individual had has much influence and impact on maroeconomic in the past forty years as Alan Greenspan.

This September, Greenspan published a memoir of his experiences in the world of economics entitled The Age of Turbulence. Greenspan calls his book a “detective story”, and he received an advance of more than $8 million from his publisher. The Age of Turbulence is certainly one of the most important books of the year, and required reading for anybody who wants to stay on top of economic affairs.

The Age of Turbulence is divided into two parts. The first half is a memoir that traces Greenspan’s rise from student to jazz musician to the world's most powerful economist. We learn that Greenspan was the only child of divorced parent, and is an ardent student of math, music and baseball.

The second half of the book is an astute look into the economies of today and the future. Here Greenspan discusses of the current world situation and a prediction of what the economy will look like in the year 2030 while he outlines the rise of the modern global economy. The “maestro” discusses many different macro topics including stock market crashes, the rise of China, the transformation of Russia, economic populism in Latin America, energy, education, income inequality, the dot com and housing bubbles, and the effects of globalization. Reading the second half of the book one chapter at a time will give you time to reflect on the analysis.

I have enjoyed reading the Age of Turbulence which is why I am recommending it as a subject for you Discussion Board Post. The writing is direct and lively for an economist, and the paragraphs are short. Don’t worry there aren’t any graphs! Facts and statistics (positive economics) fill the pages, but Greenspan is not shy about giving his normative perspective on many of the macro issues that he discusses in the book.

I believe that reading the Age of Turbulence will make a lot of the ideas and concepts in your e-text come alive. Sharing the knowledge about macroeconomics that you gleaned from reading the book is preapproved as a Discussion Board post. If you decide to review the book for your Discussion Board post I would like you to concentrate on macroeconomic themes in the second part of the book: growth, recessions, inflation, globalization, deficits, etc. If you decide to review Greenspan’s book you will still need at least three references to key terms in your textbook, but you need not have any references to on-line sources. Your post should meet the minimum word requirement of one thousand words.
The book is available at fine booksellers everywhere, including Costco. It also should be available at most public libraries. If you are into podcasts you can download the book from i-Tunes.

Here is a direct link to a Jon Stewart interview with Greenspan on Comedy Central. Click here for an audio interview with the former central banker on NPR’s Fresh Air program.

Extra Credit: Greenspan advised six presidents in the course of his career. Which two Presidents does he consider the smartest and why? If you are the first student to send me an e-mail at kwoodward@saddleback.edu with the answer, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions.


Dan Lasley said...

Did this discussion ever take off? I am looking for a sanity check for his comments.

meghann7702 said...

Here is my review of "The Age of Turbulence"

After reading this novel “The Age of Turbulence: Adventures in a New World” by Alan Greenspan, there is no doubt that this 81-year-old man is an amazing person that has lived a remarkable life, while making a tremendous impact on the world. Surprisingly, I found that this novel was actually two stories folded into one, which ended up complemented each other quite well.
The first half of the book sets the foundation of who Alan Greenspan actually is as a person and what influenced his career path in its particular direction. The novel offers wonderful insight of his childhood experiences, including his love of music, baseball, as well as his fascination with numbers. Alan Greenspan was born in 1926 and grew up in New York City within the Washington Heights neighborhood. After studying the clarinet at Juilliard and working as a professional musician, Alan Greenspan earned his B.A., M.A., and Ph.D. from New York University in the field of Economics. Then in 1954, he helped develop an economic consulting firm called Townsend-Greenspan & Co. From the years 1974 to 1977, Alan Greenspan served under President Gerald Ford as Chair of the Council of Economic Advisers. Then in 1987, he was appointed Chairman of the Federal Reserve Bond by President Ronald Reagan and remained in this position until his retirement in 2006.
What is remarkable about Alan Greenspan is the fact that this one man has more influence and authority with the everyday lives of most American citizens aged 65 and under than anybody else. In fact, this one man who is not even the President of the United States has in his possession this colossal amount of power and authority. This novel sets a wonderful illustration for the reader by providing insight on the workings of the finance of the American government from the past 40 years to the present day, while also offering insight to future financial tribulations.
Whether it was from years of wisdom or just simply luck, Alan Greenspan was the most powerful economic central planner the world has ever seen. The reason why his position is so significant is because about twice a year, the Federal Reserve chairman is responsible for making a substantive decision about whether to raise, lower, or keep the level of the United States interest rates the same. The reason why this duty is so significant is because if the interest rates are lowered, then market becomes greater. When interest rates are lowered, everyone get their loans cheaper from the government. With lower interest rates, banks can borrow money from the Federal Reserve at 4.75% interest. This discount will trickle down throughout all the financial markets. The investors in the stock market and large firms will borrow money, knowing their investments will rise in value and produce profits. The primary purpose for the Federal Reserve to have control over the interest rates is to keep unemployment rates and inflation low. When interest rates are lowered, there will result in a shift in economic attention where property prices also rise offering the capital growth income stream for investors.
One of the most controversial section of this novel was based on this information and the biggest question all critics ask themselves is did Alan Greenspan leave interest rates too low for too long after the terrorist attack on September 11, 2001 and should he have attacked subprime lenders. While the majority of economists have nothing but respect for Alan Greenspan, some are divided and disapprove of some of Greenspan’s decisions; particularly that he should never have kept the interest rates that low for such a long of a period of time. Their argument was that by allowing the interest rates to remain so low for so long, this encouraged the stock market and real estate market to form bubbles, which were not beneficial to the economy. But it is a lot easier to criticize a person’s decision after the verdict has been made. Alan Greenspan never claimed to be perfect, and throughout this novel he accepts responsibility for his few poor decisions while also defending his reason for other decisions. Throughout his entire position as the Federal Reserve Chairman, he made around 36 substantive decisions about the direction interest rates should go. Getting 35 out of 36 decisions right is an amazing accomplishment. Some critics believe that Greenspan made four poor decisions, which is still something to be proud of. The first two poor decisions are acknowledged by Greenspan as being an error. Greenspan admitted that he was notified in advance that his testimony on the proposed 2001 tax cut will more than likely send the wrong message than Greenspan anticipated and that he did not listen to those forewarnings. Alan Greenspan claimed that his endorsement for a tax cut was only half-hearted, given the fact that there were triggers to avoid budget deficits. In his defense, Greenspan explained that his statements about his reasons for supporting the tax cut were interrupted and misconstrued by the news media and politicians as a blanket support. At that time, Greenspan did not completely understand how shady and apathetic the Republican Party had become in regards to good budget policy by the year 2001. He acknowledged that in the early 2000’s, he didn’t totally comprehend the large outcome the low teaser interest rates and prepayment penalties would result in leading new and financially short homeowners into deals that were not in their best interest. The other two counts that might be considered poor economic decisions, but Greenspan disagrees and defends his decision as being correct. His reason was given the state of investor psychology, he could have canceled the stock market and housing bubbles of the late 1990’s and early 2000’s but only by paying an intolerable amount in unemployed workers and inactive factories. He may be right and he may be wrong in this decision, but it was solely a judgment call and this is a gray area in economics.
On another note, I respected Alan Greenspan for allowing women to run the Townsend-Greenspan Company after taking his position in the public sector. The way that his mind processed the condition, allowed the decision to result in a win-win situation. According to Greenspan, “Townsend-Greenspan was unusual for an economics firm in that the men worked for the women (we had about twenty-five employees in all). My hiring of women economists was not motivated by women’s liberation. It just made great business sense. I valued men and women economists equally, and found that because other employers did not, good women economists were less expensive than men. Hiring women did two things: it gave Townsend-Greenspan higher-quality work for the same money, and it marginally raised the market value of women.” (74)
One of the most interesting sections of the book was when Alan Greenspan talked about the presidents that he has worked with during his tenure as Chairman of the Federal Reserve. Alan Greenspan worked with every single President of the United States since 1969, except for Jimmy Carter. This novel supplies an interesting outlook on each president and I found this information to be invaluable and exceptionally honest.
In reference to Richard Nixon, Greenspan stated “He comes across as an extremely smart man who is sadly paranoid, misanthropic, and cynical.” (59) In addition, Greenspan explained that “He wasn’t exclusively anti-Semitic. He was anti-Semitic, anti-Italian, anti-Greek, anti-Slovak. I don’t know anybody he was pro. He hated everybody.” (59)
In regards to President Ford, Greenspan claimed “Jerry Ford was as close to normal as you can get in a president, but he never was elected.” (59) Greenspan also stated that Ford “believed in restraint in federal spending, a balanced budget, and stable long-term growth.” (65)
In reference to Ronald Reagan, Greenspan stated “His temperament fascinated me. He brought a sunniness and benevolence to the presidency that never wavered, even when he had to deal with a dysfunctional economy and the global danger or nuclear war. In addition, “Stored in his head must have been four hundred stories and one-liners; while most of them were humorous, he was able to tap them instantly to communicate politics or policy.” (88) Greenspan explained that Reagan’s one-liners and stories was an “odd form of intelligence” but was used to correspond politics and renovate the nation’s self-image and self-confidence. (88)
Greenspan noted that with George H. W. Bush “the economy was his Achilles’ heel, and as a result we ended up with a terrible relationship.” (113) In addition, Alan Greenspan wrote “I was saddened years later when I discovered that President Bush blamed me for his loss” [presidential election of 1992]. (122)
Oddly enough, President Bill Clinton was the most like a soul-mate to Greenspan, in spite of their ideological differences. Also, Greenspan labeled Clinton’s economic plan in 1993 that centered on lowering the national deficit. Greenspan claimed “I didn’t share his baby-boom upbringing or his love of rock and roll. Probably he found me dry—not the kind of buddy he liked to smoke cigars and watch football with. But we both read books and were curious and thoughtful about the world, and we got along. Clinton publicly called us the economic odd couple.” (161)
Greenspan’s most notable quote in reference to George W. Bush and his administration was “Most troubling to me was the readiness of both Congress and the administration to abandon fiscal discipline.” (233) Additionally, in direct reference to George W. Bush, Greenspan explained, “My biggest frustration remained the president’s unwillingness to wield his veto against out-of-control spending.” (242) In regards to the Republican-led government leaders, Greenspan accused them of being “readily inclined to loosen the federal purse strings any time it might help add a few more seats to the Republican majority.” (243-44) Greenspan claimed that the result of their action was not only unconscionable federal deficits but also his own disillusionment with his party. As a lifelong Republican, Greenspan stated that he was ashamed of his party for abandoning fiscal discipline. Throughout the book, he also declared “The Republicans in Congress lost their way. They swapped principle for power. They ended up with neither. They deserved to lose [the 2006 Congressional Election].” (244) Obviously, this portion of the book definitely received an enormous amount of media attention due to the fact that his insights and opinions on the presidents (particularly George W. Bush) are real, raw, and truthful.
In the second half of the book, Greenspan designated chapters to all of the major obstacles that the American economy as well as the rest of the world will have to overcome. This novel allows readers to look into Greenspan’s insights and opinion of these significant historical events such as Black Monday, the rise of China, the fall of the Berlin Wall, the role of Russia in world economics, the dot com bubble and its bust, and the effect of globalization as it was ensconced immediately after World War II and how it appears today. Alan Greenspan’s opinion on overcoming the energy inefficiency is to use more nuclear power and expects that these efforts could help reduce the effect of global warming with carbon caps or taxes will fail. The rising inequality of income could unravel the underlying ties that form our society and may result in violence if not seen about. His suggestions to this economic issue cannot be found in raising taxes for the wealthy citizens but rather to improve the education system. Greenspan suggests paying math teachers more, which is an echo of what we heard in last fall’s PADM 5600. This suggestion makes sense because there are fewer teachers that want to teach math courses. I feel that the entire education system could use some major improvement and teachers as a whole should have their income increased.
In Greenspan’s view, free market capitalism was the economic direction that holds the upper hand over other theory attempted up until now in human history. After reading the novel, it is apparent that Greenspan fully endorsed and support Adam Smith’s hypothesis of the “invisible hand,” which endorses people’s motivational self-interest. This laid the basic foundation of his economic viewpoint of creating a successful, growing economy. Throughout the novel “The Age of Turbulence,” he discussed the rapid historical growth of the United States economy following market capitalism as well as its assistance to foreign adopters, albeit with persistent disfunctions. His support for market capitalism is realistic however, and therefore, not without criticism. This includes the anxiety often expressed within a society as “creativity destruction” plays out. In addition, Greenspan criticized the lack of quality public secondary education as a whole (particularly in mathematics and the sciences) and why this issue increases the division between the rich and poor within the United States.
I found that Alan Greenspan’s opinion on the future economic prospects facing the United States is quite pessimistic. There are a few reasons for this starting with the possible recession looming ahead. There is also the upcoming retirement of the baby boomers and the possible decrease in the rate of new technology and innovative thinking.
What I found a little odd in the novel “The Age of Turbulence: Adventures in a New World” is that Mr. Greenspan does not really mention a lot of information about Mr. Ben Shalom Bernanke, the newly appointed Federal chairman and his successor. There is no doubt that Mr. Bernanke has some huge shoes to fill, but Greenspan makes no notion of whether or not he ever offered his advice, especially during his first few months in office with the miscommunication with the media, only a short caption within the novel under a photograph of Greenspan shaking Bernanke’s hand after his swearing in stating “I was very comfortable leaving the post in the hands of such an experienced successor.”
Overall, I found the novel “The Age of Turbulence: Adventures in a New World” a surprisingly interesting book filled with valuable information. The reason why I enjoyed reading this book was because it was well-written in plain English, while most economic books (particularly textbooks) are written with so much elaborated wording and frivolous information. I did not even realize until after reading the novel how much economic information I learned from author Alan Greenspan. I found it ironic that Greenspan would title his novel “The Age of Turbulence” considering the fact that under his tenure the nation only suffered two mild recessions that we quickly sprang out of thanks to his efforts. In addition, I appreciated the balanced serving of entertaining information and economic information Greenspan offered throughout the novel.