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Tuesday, November 13, 2007

Review: The Age of Turbulence

Alan Greenspan is perhaps the last of a dying breed, the reality-based Republican. As chairman of the Federal Reserve, he presided over the Clinton boom. As part of the Reagan administration, he was responsible for raising payroll taxes (yes, an extremely regressive tax) to "save social security".

The first part of this book is largely autobiographical, describing his childhood, his interest in economics, and eventually his appointment as a technical economist in the Ford, Reagan, and Bush administrations. The most entrancing portions of this books are the descriptions of his time as chairman of the Federal Reserve. Obviously, he had access to data and analysis that nobody else had, but nevertheless, had to rely very much on his instinct in guiding the world's largest economy. It was amazing how often he got it right.

Of course, he gets it wrong as well, mostly on the political side. His excuse for giving Congress and the Bush administration permission to grant giant tax cuts and destroy the hard fought surplus built up over the 1990s was that he gave a nuanced policy recommendation to an extremely partisan congress that was determined to misread him. While Brad DeLong might be willing to forgive him that, I doubt that future historians will be so kind.

The second half of the book focuses on topics near and dear to Greenspan: what the causes of economic growth are (where he is surprisingly close to Bernstein's The Birth of Plenty at least, with respect to the rule of law and property protection), a tour of the world's economic geography and what the problems each area has, globalization, retirement, corporate governance, and the shortage of oil.

As a reality-based person, I think he is very good and correct in his analysis. He is definitely gloomy about the prospect of the human race being able to contain global warming, and seems to have resigned himself to mitigation based solutions rather than prevention --- given that he is already in his 70s, that is perhaps a suitable view to take. Those of us who are younger might not wish to be so sanguine.

All in all, I learnt quite a bit from this book --- from how the federal reserve works to what the explanation is behind the current high oil prices. I disagree with many of his views (e.g., his solution for "saving social security" involves increasing an already highly regressive tax, rather than expanding the tax to all incomes; his observations of the medicare problem conveniently leaves out how inefficient our medical system is, because it is one of the few failures of capitalism that have been analyzed to death)

A challenging book, but worth the time.

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