“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”
This is a typical quote from the book of memoirs of the most enduring chairman of the Federal Reserve. It was an unlikely read for me. However, upon hearing an interview with Greenspan promoting the book, I was intrigued by his praise of Presidents Ford and Clinton in the same breath, as well as his obvious intellect. In the end, I found the book to be an enlightening and worthy read.
As with many memoir efforts, this book contains interesting autobiographical stories over the course of Greenspan’s life. For example, he talks about his early life as a semiprofessional musician, having excelled to the level of studying clarinet at Juilliard. As a young man, upon going to hear the Glenn Miller orchestra at a club in Manhattan, he recognized an arrangement based on the Sixth Symphony of Tchaikovsky, the “Pathétique.” He called up to Miller, “…hey, that’s the ‘Pathétique’!”—to which Glenn Miller responded, “Terrific, kid!”
Greenspan’s abilities at mathematics and his love of internalizing and summarizing facts shaped the direction of his career. It is easy to forget that this age of search engines and instant information is a relatively recent convenience. The “old method,” meaning as little as 15 years ago, required a lot of research work in libraries and countless hours spent preparing presentations by hand. During his undergraduate college career at New York University, he began to set himself apart by excelling at researching and summarizing financial statistics. After receiving an undergraduate degree from New York University (1948), he took a job with the Conference Board, a nonprofit organization funded by business executives to analyze business conditions and make financial predictions. He excelled at this type of work and innovated statistical techniques and financial analytical reporting. He completed a Master’s Degree at NYU soon after his undergraduate degree and got a Ph.D. much later, 1977. Along the way, he had the good fortune of meeting such people as Ayn Rand and others who had significant influence on his intellectual development.
For those of us who have lived through the politics of the ’70s, ’80s and ’90s, Greenspan’s reflections on the various presidencies he observed personally are fascinating to say the least. Being first selected to serve on the Nixon panel of Economic Advisors, he work directly with U. S presidents from Nixon through George W. Bush. He cites the extraordinary intelligence of Nixon and his ability to ask questions about economic conditions and then, during press conferences, recall the details exactly and present a meaningful and accurate summary, even though he knew little about economics. He also expressed his relief upon learning of Nixon’s resignation from the presidency. He believed Gerald Ford to be the most honest and honorable president and to have the most normal and undamaged personality of all of the presidents observed during his watch. He felt that Clinton was one of the most intelligent presidents and was perhaps the most effective president of those he served. He was grateful to Clinton for making difficult choices and succeeding in eliminating the federal deficit in lieu of funding programs that were dear to him. He was appreciative of the wisdom, abilities and savvy of Treasury Secretaries Lawrence Summers and Robert Rubin.
Greenspan got to know such people as Dick Cheney and Donald Rumsfeld during his time with the Ford administration. He admired them very much but admits, with apparent regret, that today they are not the same people he knew then.
Greenspan is a self-professed libertarian and obviously a strong believer in free-market economy. As one would imagine, he is very knowledgeable about historic economics and regularly cites the work of Adam Smith, the 18th century Scottish economic theorist, who was the apparent first to espouse the free-market economy that many in the free world have come to appreciate and accept. At the same time, Dr. Greenspan is a realist, a pragmatist, and one who is able to understand and appreciate a broad range of perspectives on economic theories and policies. He describes a segment of society who believes that the success of the American market-driven economy has resulted in a standard of living for the middle class that is largely wasted on trivia. He describes a rating system of all 161 world economies based on their ranking of free and open markets. Although Hong Kong is number one, of the larger economies America is rated number one. France is rated number 45 and Italy is number 60.
He believes that a most important tenant of fostering a free-market economy is a government’s laws protecting property rights. If investors fear that their investment might be easily lost due to fraud, thievery or confiscation, they will not invest. He states that the reason Americans have the lowest per capita savings rate in the world is because we have a social safety net: Social Security. When countries offer no such safety net, citizens tend to garner more personal savings because they will be obliged to care for themselves in retirement or in the case of an emergency.
There are fascinating moments, like his report that economists in the 1950s were worried that the rapidly increasing consumer debt would lead to large-scale defaults and burden economic growth. Obviously, this did not happen, and it causes pause today to compare these 1950s concerns with today’s level of consumer debt. He describes an interesting concept called “creative destruction” under which superseded businesses and products are displaced by new ones. He gives the example of the manufacture of the tin can which was superseded by aluminum and plastic.
Greenspan expresses concern about current phenomena, including:
(1) The failure of our education system to properly educate our citizenry to become meaningful workers in a new age of technological sophistication.
(2) The excessive concentration of wealth among too few and the large and growing size of the citizenry at the bottom of the ladder.
(3) Our dependence on petroleum. He believes that nothing serious will be done about it until we have reached a true crisis point and have no choice. He also points out that although we consume the most energy of any country, we have also continued to become ever increasingly efficient users of energy, and we continue to use less energy per capita year after year.
(4) Our growing federal spending deficit.
(5) Our ability to sell Treasury bonds to foreign investors as our currency and our economy become less attractive investments.
Because Greenspan has been sought out by virtually every significant economic leader in the world, he knows the economic players in the world economy very well and gives interesting assessments of the economies of Russia, China, Japan, India, South America, et al.
Managing the United States economy is a tricky job and even those as educated, experienced and savvy as Greenspan only make educated guesses, and sometimes they are wrong. There is strong evidence that price controls and restrictions do not work and are counterproductive. The chairman of the Federal Reserve does not make unilateral decisions about economic policy. The chairman is a member of a government-appointed commission called the Federal Open Market Committee (FOMC). When the prime lending rate is moved up or down, or when other significant economic policies are implemented, it must be by a majority decision of the FOMC. The chairman certainly has a lot of influence, but in the end he has only one vote. Although one can argue that the Federal Reserve should have taken some action to prevent the “sub-prime mortgage crisis,” it is clearly difficult to establish and implement policy to counter greed. As a country such as China grows and prospers, their economy will necessarily experience inflation and, in time, they will have less and less impact on the U.S. economy.
One of the most significant aspects of this book is its ability to carry the reader along on a tour of the workings of our government and, to a large degree, how our economy functions. For those readers who fear it might be daunting, it is obvious that Greenspan went to a lot of effort to make it accessible to a general readership. It is highly recommended.