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Published: Wednesday, 9/26/2007

Greenspan provides an insider's look at economic history

READING former Federal Reserve Chairman Alan Greenspan's The Age of Turbulence is a necessary and rewarding chore.

It is an inside, illuminating economic and financial account of the last 35 years, with primary focus on the role of the United States and Mr. Greenspan himself in that saga, but in a world context. Even if, like mine, your build-up of knowledge of economics has been "catch as catch can" this book is important and relatively accessible. Although he goes for long, small-print footnotes, Mr. Greenspan helps us out with explanations that cut through "Fedspeak" and his own - in the past sometimes deliberate - arcane obfuscations of sensitive points.

Mr. Greenspan is a very interesting person. A New Yorker born in 1926 of Romanian and Hungarian Jewish immigrant extraction and an only child, he is an accomplished performance jazz musician. He has married twice, in 1952 and 1987, dating Barbara Walters in between. Both wives' maiden names were Mitchell, the second, lasting marriage to TV journalist Andrea Mitchell.

He is understated but merciless in his assessment of the American presidents he has encountered or worked for, from Richard Nixon through George W. Bush. He considered Nixon and Bill Clinton to be the smartest of the seven. If one were tempted to consider Mr. Greenspan presumptuous to judge them, elected as they were by the wise American people, the cumulative weight of his analysis of the complex American political and economic machine quickly and easily gives him the right to do so.

For the rest of us who read the book, the subtle, naughty digs at our alleged lords and masters are the pearl onions in an otherwise chewy stew. He calls former President George H. W. Bush's approach to interest rates "not a thoughtful view."

For me, the book ate up three days of vacation in Carmel, Calif., and persuaded my in-laws definitively that their baby girl had unfortunately married what Mr. Greenspan calls himself and Bill Clinton, an "information hound."

Mr. Greenspan is dead serious about his analysis of the American economy during his tenure as chairman of the White House Council of Economic Advisors, and, most importantly, his nearly two decades as head of the Federal Reserve System, including as chairman of the key interest-rate-setting Federal Open Market Committee.

One of the most important aspects of the book is that his comments about past developments bear directly on key current and future issues. For example, there was a 10 percent surcharge on federal income taxes during the Vietnam war. And anyone foolish enough not to take the current upheaval in the U.S. housing market seriously should read carefully Mr. Greenspan's account of the savings-and-loan scandal during the presidency of George H. W. Bush, which ended up costing the U.S. taxpayer $87 billion and involved current Republican presidential candidate Sen. John McCain. It is worth noting also the devastating impact of a 1990 housing-industry meltdown on the world's second largest economy, Japan's.

Mr. Greenspan's beliefs and his assessment of the enemies of what he sees as the goal of the economic and financial leadership he provided for those many years, remain consistent throughout, even though he sometimes glosses over what he could have done to avoid national mistakes.

One of these, which has attracted much attention since the book appeared, is the second Mr. Bush's insistence in 2001 on tax cuts of $1.35 trillion and beyond, particularly favoring America's rich, rather than paying down the national debt or fixing Social Security.

Mr. Greenspan is an uncompromising champion of market capitalism, documenting the failures of other economic approaches. His goal throughout his career was to keep America's own market capitalism healthy and its stout productivity growing.

The principal enemy of that he perceived to be inflation, which the Federal Open Market Committee under his leadership stomped on whenever it reared its head. The FOMC's actions frequently did not bring joy to the Congress, whom he describes as busy "feeding at the trough," or presidents. He regrets that George H. W. Bush holds him responsible for his having lost his 1992 bid for re-election.

Mr. Greenspan doesn't like budget deficits, pointing out that interest on the U.S. national debt, which has grown under the current President Bush to nearly $10 trillion, is the third largest U.S. budget expenditure after Social Security and defense. The budget surplus Mr. Bush inherited in 2001 was gone a few months after he took office.

Mr. Greenspan acknowledges that he has been a Republican throughout, reconciling his professional standards with such a political allegiance with the following near-aphorism: "Compromise on public issues is the price of civilization, not an abrogation of principle."

Chapter 25, which he calls, partly tongue in cheek, "The Delphic Future," is farsighted and a little frightening. In a characteristically cold-blooded, statistical presentation, he says where he thinks the U.S. economy will be in 2030. (Don't worry, not in the tank.) He cautions about the concentration of income at the top of society, a "pernicious drift toward fiscal irresponsibility in the United States," and our "dysfunctional elementary and secondary school systems."

Most worrisome, calling into question the continued ability of the Fed to play its health-restoring role he proposes that globalized markets have become too huge, complex, and fast-moving to be subject to 20th-century supervision and regulation.

Given what his book chronicles the Federal Reserve having achieved under his long tenure, I closed it, thought a bit, wrote this, and then, sloughing off despair, headed to the beach to walk the dogs, for whom "creative destruction" means digging up the garden.



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