Alan Greenspan: The Age of Turbulence

Alan Greenspan begins The Age of Turbulence on the morning of September 11th, 2007, but then leaps back to his childhood, and follows the arc of his remarkable life’s journey through to his more than 18-year tenure as Chairman of the Federal Reserve Board, from 1987 to 2006, during a time of irrational exuberance. It’s a good read, written in clear language on the workings of the economic world (and then some). Here are some of the informed opinions he presents in the book:

“For the five years we overlapped, President Bush honored his commitment to the autonomy of the Fed….The administration also took the Fed’s advice on policies we thought were essential for the health of the financial markets. Most important was the effort that began in 2003 to curb excesses at Fannie Mae and Freddie Mac….President Bush had very little to gain politically by supporting a crackdown. Yet he backed the Fed through a two-year struggle that resulted in crucial reforms. My biggest frustration remained the president’s unwillingness to wield his veto against out-of-control spending.”

“After the Republicans lost control of Congress in the November 2006 election, former House Republican majority leader Dick Armey published a perceptive op-ed piece in the Wall Street Journal….Armey had it exactly right. The Republicans in Congress lost their way. They swapped principle for power. They ended up with neither. They deserved to lose.”

“[Wealth Creation] requires people to take risks. We can’t be sure our actions to acquire food, clothing, and shelter, for example, will succeed. But the greater our trust in the people with whom we trade, the greater the accumulation of wealth.…Reputation and the trust it fosters have always appeared to me to be core required attributes of market capitalism. Laws at best can prescribe only a small fraction of the day-to-day activities in the marketplace. When trust is lost, a nation’s ability to transact business is palpably undermined. In the marketplace, uncertainties created by not always truthful counterparties raise credit risk and thereby increase real interest rates.” Looking toward the U.S. economic future, a 4 to 5 percent inflation rate “is probably not a bad first approximation of what we will face.” He continues, “Yet to keep the inflation rate down to a gold standard level of under 1 percent, or even a less draconian 1 to 2 percent range, the Fed, given my scenario, would have to constrain monetary expansion so drastically that it could temporarily drive up interest rates into the double-digit range not seen since the days of Paul Volker.“

“A simple test for any retirement system is whether it can assure the availability of promised real resources to retirees without overly burdening the working-age population. By that measure, America may be on a collision course with reality….[W]e likely won’t have enough people working, nor will we likely have a sufficient increase in the amount each worker in average can produce, to cove the enormous shortfall from entitlements under current law. It may not even come close.”

“The notion of enlisting representatives of a corporation’s various stakeholders on the board—unions, community representatives, customers, suppliers, and so forth—has a nice democratic ring to it. But it is ill-advised and I strongly suspect it will not work. Today’s highly competitive world needs each corporation to execute plans from a single coach, as it were. A vote by the whole team on each big play is a recipe for defeat. I assume that eventually some of the more abrasive edges of Sarbanes-Oxley, especially Section 404, will be honed down.”

"The shift of manufacturing jobs in steel, autos and textiles, for example, to their more modern equivalents in computers, telecommunications and information technology is a plus, not a minus, to the American standard of living,"

“However we get to 2030, the U.S. economy should end up much larger, absent unexpectedly long crises—three-fourths larger in real terms than that in which we operate today.”

“We should focus on addressing and assuaging the fears induced by the dark side of creative destruction rather than imposing limits on the economic edifice on which worldwide prosperity depends.”

“Venice, I realized, is the antithesis of creative destruction. It exists to conserve and appreciate the past, not create a future. But that, I realized, is exactly the point. The city caters to a deep human need for stability and permanence as well as beauty and romance. Venice’s popularity represents one pole of a conflict in human nature: the struggle between the desire to increase material well-being and the desire to ward off change and its attendant stress.”