Turbulent times

2007-12-05 00:00

FOR one used to communicating in Fedspeak, a deliberately opaque form of language designed to keep the markets guessing, former Federal Reserve Board chairman Alan Greenspan (or his editor) writes with surprising clarity — and a refreshing lack of pomposity. His much-trumpeted memoirs are a good read, even for those whose understanding of economics might be limited.

The Age of Turbulence has three distinct parts to it. The first, and most entertaining, deals with Greenspan’s upbringing and early career, entry into politics, chairmanship of the Council of Economic Advisers and encounters with various United States presidents before and during his 18-year stint as chairman of the Fed.

Born and raised in New York, the young Greenspan’s early interests were baseball and clarinet playing. After failing the World War 2 draft for health reasons and playing in a professional jazz band, his quickness with figures and interest in the stock market led him, via the Universities of New York and Columbia, to a successful career on Wall Street. On the way he fell deeply under the spell of libertarian philosopher Ayn Rand, author of The Fountainhead and Atlas Shrugged, whose influence on the serious young number-cruncher has lasted throughout his life. A diehard Republican, Greenspan made his first foray into national politics in 1967 as a member of Richard Nixon’s campaign team. While developing a respect for Nixon’s intellect, he never took to the candidate as a person.

“He wasn’t exclusively anti-Semitic. He was anti-Semitic, anti-Italian, anti-Greek anti-Slovak. He hated everybody.” Gerald Ford, with whom he served as chairman of the Council of Economic Advisers, was a far more likeable character, “a man with fewer psychological hang-ups than almost anyone I’d ever met”.

When Ford narrowly lost the presidency to Carter, Greenspan returned to private life as a director of companies such as Mobil, JP Morgan and General Foods, before Ronald Reagan, a conservative soul-mate, recruited him to his presidential campaign and, in 1981, made him chairman of the Fed. He got on well with Reagan, less well with George Bush the elder and, despite their ideological differences, admired Bill Clinton both for his intellect and his courage in tackling the United States’ soaring budget deficits. The only president for whom he has harsh words is the present incumbent, George W. Bush, whom he castigates for cutting taxes but failing to curb out-of-control spending. Bush’s Republicans, he says, deserved to lose control of Congress in 2006 because they were spending money heedlessly in an unprincipled attempt to hold on to political power. The second part of Greenspan’s book is a tour d’horizon of the world economy, after what he describes as “a 60-year learning process”. The key growth-enhancing institutions, in his view, are state-enforced property rights and the rule of law. What makes capitalism superior to any other economic system, he believes, is what Joseph Schumpeter termed “creative destruction” — a market economy’s ability to revitalise itself from within by scrapping old and failing enterprises and reallocating resources to newer and more productive ones. Competition, “the primary driver of economic growth”, may create much anxiety — and a loss of jobs — but it is the only way to increase productivity and raise living standards on a sustained basis, he argues.

From his elevated vantage point, Greenspan surveys the varieties of capitalism, as practised in Britain, Germany, France, Germany, Canada and Japan, surmising that the less restricted an economy, the more successful it has proved to be. He holds up Australia as a modern example of a successful country — a microcosm of the United States.

Of the major emerging eco-nomies, China, in his view, will continue to grow, but without protected property rights and the safety valve of a democratic pro-cess, is in danger of falling prey to its own internal contradictions. India and Russia, respectively, will remain hampered by the legacy of central planning as well as a deep-seated reluctance to fully embrace market forces. Of particular relevance to South Africa, and the choices facing a Zuma-led ANC, is his critique of “populism” in Latin America, which has had baleful effects on living standards across the continent. The problem with political populism, he reminds us, is that it makes large promises without ever considering how to finance them.

In the third (and to non-Americans perhaps least interesting) section , Greenspan defends his record as chairman of the Fed, especially his controversial decisions to support George W. Bush’s tax cuts, and to lower interest rates in 2003. The latter led indirectly to the sub-prime crisis that is currently roiling international markets. He concludes by looking into his crystal ball and trying to imagine where the U.S. and the world might be in 2030, when China will be challenging the U.S. as the world’s leading economy. Ever the optimist, he believes that if China does manage to press ahead with free-market capitalism, it will surely propel the world to new levels of prosperity.

Greenspan’s book provides a useful counterpoint to another best-seller, Naomi Klein’s The Shock Doctrine (Penguin), currently making waves in economic circles. Klein, an impassioned Canadian anti-globalisation campaigner and journalist, argues that Milton Friedmanite-capitalism (which Greenspan warmly endorses) is responsible for most of the political and economic disasters of the past 30 years. Her conclusions could hardly be more different from Greenspan’s, but her evidence — it must be said — is not nearly as convincing.

• The Age of Turbulence — Adventures in a New World; Alan Greenspan; Penguin Allen Lane; R320.

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