Book Review: “The Age of Turbulence”, Alan Greenspan

Alan Greenspan, The Age of Turbulence

It has been said that knowledge is power. If so, it would seem Alan Greenspan would convincingly prove the theory. Pure, untethered and incorruptible knowledge, and the ability to reason, begat great power and influence in the life of Alan Greenspan.

How did he do it? First, he lived his life – beginning at a very early age – in constant thought, study and practice. The pursuit of knowledge was his hobby and his occupation. He sought to gain useful and enjoyable skills, knowledge and answers to the world around him.

Second, he followed his heart and interests rather than money.

Third, he dreamed of a better life – one that would extend far beyond his neighborhood – and actively pursued it.

Greenspan was blessed with a sharp mind, innate curiosity, natural work ethic and a non-threatening manner. He was rewarded with opportunities that offered exposure, resources and – more opportunities to learn. People began to recognize his skill, knowledge and – just as important – his unyielding allegiance to the truth. A truth derived solely from the disciplined study of facts. Of great fortune for all of us, he was eventually elevated to positions where his wisdom, intellect and incorruptibility could enhance the prosperity of a great many people.

Alan Greenspan was born on the west side of Manhattan in 1926. His mother’s family had emigrated from Hungary; his father’s from Romania. Of lower-middle-class means, Greenspan’s parents divorced a few years after his birth. Alan was raised by his mother as an only child but enjoyed a large and close extended family. He frequently visited his father, who worked on Wall Street but was by no means wealthy.

His early interest was baseball. He listened to games and kept detailed box scores. He learned fractions by calculating batting averages. He played ball himself and dreamed of becoming a professional but didn’t quite have the talent. Other early interests were Morse Code, photography and trains. As a youngster he memorized the train schedules for the entire United States. At 13 he discovered music. He took up clarinet and practiced several hours a day.

He entered high school in 1940 when the rooms were bulging with immigrants from Europe because the Nazis had just conquered Western Europe. London was soon under siege. Alan made decent grades, but his interest remained with music and baseball, and he earned side money playing in a band.

He was practicing clarinet when Pearl Harbor was bombed. He graduated from high school in 1943 and began taking courses at Juilliard in clarinet, piano and composition as he awaited receipt of his draft card. To his great disappointment, he failed his military physical. Lacking direction, he accepted an invitation to join a successful jazz band. For the next two years he played up and down the East Coast to sizeable crowds. Each night during session breaks Greenspan would read books while the other band members smoked and drank in the lounge.

He read nonfiction: books about the London and U.S. stock markets, and then scores of books on JP Morgan. Alan was fascinated with Morgan’s wealth and reach. Morgan financed the formation of U.S. Steel, consolidated the railroads, contributed to the forming of General Electric, and was the main stabilizing force in the U.S. financial system before the creation of the Federal Reserve. Greenspan was equally as impressed by Morgan’s character. During this time, Greenspan realized that Wall Street was an interesting, exciting place, and he wanted to go work there.

Alan enrolled at New York University for a degree in finance. Concerned about his prospects, he read all of his 1st semester textbooks in advance. He was an A student and gained considerable confidence in his intellect. It was also a time when everyone was interested in economics. The Great Depression was generally accepted as the reason World War II began; the economic engine of the U.S. was widely credited with winning the war; and the appropriate means for economic reconstruction of the U.S. and Europe was the debate of the day.

Greenspan twice read Maynard Keynes’ lengthy and highly technical breakthrough macroeconomics book – The General Theory of Employment, Interest and Money – in great detail. Economics intrigued Alan, but where he really excelled was math. His professors took note, and Alan began working part time crunching numbers for Wall Street firms.

After graduating from college, he took the lower paying of two job offers and joined what was considered the world’s foremost private economic research organization, the National Industrial Conference Board. Alan was most impressed with the extensive library of information on every statistical, economic and industrial topic conceivable. Alan made it his mission to “memorize all the data in the library.” He gained considerable renown as “the guy with the answers.”

In addition to basic research assignments, Greenspan began writing articles for Business Record, the Conference Board’s monthly publication. Meanwhile, he completed a master’s degree at NYU and enrolled in the Ph.D. economics program at Columbia. One of the courses he took was mathematical statistics, which dealt with the fledgling field of study that became known as econometrics, that is, the forecasting of the economy. During this class Greenspan says he found a growing field he could excel in.

In the early 50s he became acquainted with, and considerably influenced by, novelist Ayn Rand and her philosophy of “Objectivism,” which holds, among other things, that human beings gain objective knowledge from perception by measurement; that the proper moral purpose of one’s life is the pursuit of one’s own happiness or “rational self-interest,” and that the only social system consistent with this morality is full respect for individual rights, embodied in pure, consensual laissez-faire capitalism.

In 1954 Greenspan partnered with bond trader William Townsend to form Townsend-Greenspan and Company, an economic consulting firm. He was its chairman and president until 1974 when he joined Richard Nixon’s administration as director of domestic policy research and then as chairman of the president’s Council of Economic Advisers. He then returned to Townsend-Greenspan in 1977 and also completed a Ph.D. at NYU.

From 1981 to 1983, he served as chairman of the National Commission on Social Security Reform, working to save the Social Security system from bankruptcy. When the chairman of the Federal Reserve Board retired in June 1987, Alan was nominated as his replacement and accepted. Alan Greenspan was chairman of the Federal Reserve Board for five straight terms and was not eligible for a sixth term.

Greenspan is a staunch believer in the power of capitalism and free markets. He believes government should stay out of the free markets except as needed to maintain stability (i.e., the warding off of economic depressions and bubbles) by using macroeconomic means such as varying the money supply and interest rates.

Although he is a lifelong Republican, he praises Bill Clinton for doing what Alan counseled was most prudent for the nation’s long-term economic health – even when it wasn’t popular. He does not seem to be a fan of President George W. Bush.

Greenspan devotes a considerable part of his book to the difficulty that free-market capitalism is clearly the economic model that generates the greatest prosperity for all, but that inherent in it is that there will always be both a great discrepancy between the rich and poor and, at times, people “getting hurt” economically. Unfortunately, attempts to intervene and protect – or take from the haves and give to the have-nots – causes a breakdown in the system itself. Furthermore, attempts to protect “here and there” results in unhealthy imbalances that end up simply shifting the pain from one group to another. More systemic efforts to reduce the discrepancy between the haves and have-nots, such as socialism and communism, simply do not work.

Alan Greenspan fears for the size of the U.S. deficit. He also warns that protectionism and limits to free trade will result in damage to the global economy and less prosperity, not more.

The Age of Turbulence is an incredibly interesting read and a nine-course meal on economic theory, history and politics. I highly recommend it.