The Book of the Week is “The Age of Turbulence” by Alan Greenspan, published in 2007. This is a career memoir / global macroeconomics overview in one tome. Perhaps it should have been split into two books so as to be more comprehensive, as the author, in describing the recent economic affairs of India, Russia and China, failed to mention major factors in connection therewith; such as the caste system, Jeffrey Sachs’ advice to Boris Yeltsin, and a detailed description of China’s one-child policy.
Born in 1926, Greenspan studied business and finance at New York University after WWII. While there, he spent two months on freelance work doing economics research. It involved pencil, paper and a slide rule. These days, it would take minutes and involve software.
In August 1974, the author was appointed chairman of the Council of Economic Advisors. He cited President Nixon’s price and wage controls as an example of government action that leads to resistance from the market. The first quarter of 1976 saw the U.S. economy grow at 9.3% and the second quarter, at less than 2%. Greenspan was not alarmed by this kind of extreme swing; however, the slowing economy caused voters to choose Jimmy Carter over Gerald Ford for president in 1976. During Carter’s term, economists learned that the way for a country to achieve long-term prosperity is to control inflation. The reason Carter caused financial havoc was that his economic goals contradicted each other.
In summer 1987, Greenspan became chairman of the Federal Reserve Bank. In 1993, Bill Clinton chose to reduce the federal deficit rather than keep his campaign promises that necessitated increasing spending on various items. He could not afford to do both. The result was a budget surplus by 1998.
In late 1994, the Treasury Department and the Federal Reserve had to take action to prevent Mexico’s financial collapse. Otherwise, the southwestern states would be adversely affected, and immigrants coming into the U.S. would double.
In 1996, more and more households were exposing themselves to equity risks. Even so, introduction of the World Wide Web appears to have been an innovation that temporarily increased the economy’s ability to expand on an unusually grand scale. Approximately during the Web’s first decade, the economy wasn’t in a normal business cycle. The Web’s ability to make information available instantaneously, thus reducing uncertainty, provided a major boost to corporate America. The Fed, therefore, raised interest rates to curb inflation only in autumn 1998, what with the dire financial straits of the Russians, and hedge fund Long Term Capital Management’s bailout.
In the autumn of 2002, the Republicans turned a deaf ear to the author when he tried to tell them why it was important to rein in spending and renew the Budget Enforcement Act. He already had a difficult job, as he explained, “But too often we have to deal with incomplete and faulty data, unreasoning human fear, and inadequate legal clarity.” Nevertheless, Greenspan is optimistic about the future because the level of worldwide commerce and living standards can continue to rise indefinitely. He believes the presence of wholly competitive free markets and ever-improving technology are what drive them.
Read the book to learn about the two major elements required for a market economy and two others that are essential for growth and prosperity; the factors involved in predicting the health of the U.S. economy in 2030; three important influences on global growth; about the nature of economic populism, and much more.