Page 3 of
4 BOOK
REVIEW Reaping what is
sown The Age of Turbulence
by Alan Greenspan
Reviewed by Julian
Delasantellis
critics
claimed further imperiled national working
classes, privatization, the opening to foreign
investment of key industries, trade liberalization
and removing price controls on key domestic
consumption sectors.
Much in contrast to
the critics' contention that the origin of the
crisis was that the Tiger
economies were too connected to the new global
financial architecture, the actual solution to the
crisis involved putting the Tigers even more at
the market's mercy.
The year 1997 is the
Greenspan precis. Markets above all, markets are
always right, but if a situation ever arises
wherein markets are wrong, Greenspan would always
be ready to step in and right the market's wrong,
to make the markets once again infallible and
inviolable. The crisis of 1997 was not the first,
nor would it be the last, but it is the
circumstance where the world's new masters most
visibly and obviously displayed their powers.
If, as in the 1970s British network ITV's
serialized drama Upstairs Downstairs, we
are all just the serving class downstairs for our
new masters upstairs, then Greenspan would be our
Rose Buck (Jean Marsh), managing the servants'
affairs quietly and effectively so as to not cause
too much fuss for the grand rulers above us.
Much of the book's buzz in the US centers
on Greenspan's apparent break with President
George W Bush's fiscal policies, specifically, the
huge billion-dollar US government deficits that
came so soon on all of former president Bill
Clinton's projected surpluses.
Greenspan
zeroes in on profligate spending by the Republican
Congress of 2002-2006, spending never held in
check through the president's constitutional
prerogative of the veto.
With the
Bush-Dick Cheney victory in 2000, Greenspan
"thought we had a golden opportunity to advance
the ideals of effective, fiscally conservative
government and free markets".
But sounding
more like innocent, hayseed Jefferson Smith (Jimmy
Stewart) in Frank Capra's 1939 movie Mr Smith
Goes to Washington, than the 30-year
Washington political operative that by then he
was, Greenspan soon becomes disillusioned with his
old comrades.
I was soon to see my old friends
veer off to unexpected directions. "Deficits
don't matter," to my chagrin became part of the
Republicans' rhetoric. House speaker [Dennis]
Hastert and House majority leader Tom DeLay
seemed readily inclined to loosen the federal
purse strings any time it might help add a few
more seats to the Republican majority ... Not
exercising the veto power became a hallmark of
the Bush presidency ... To my mind, Bush's
collaborate-don't-confront approach was a major
mistake. The Republicans in Congress lost their
way. They swapped principle for power. They
ended up with neither.
Of course, one
thing that the fiscal conservatives never really
like to talk about is that a government's surplus
or deficit position is a factor of both
expenditures and income. On that matter, Greenspan
can hardly claim innocence, for he was a key
factor in the congressional debate that led to the
passage of the 2001 $1.35 trillion Bush tax cut,
and in doing so set the stage for the enormous
federal deficits of this decade.
Greenspan
testified before the US Senate in early 2001. He
said that, amazingly enough with the wisdom of
hindsight, the prospect of continued large budget
surpluses were a serious threat to the US economy,
which he said was already slowing as the dot-com
stock bubble started to leak air.
The
economic prosperity of the 1990s had bestowed on
Greenspan unparalleled and unquestioned
credibility in all things economic (a 1999 Time
Magazine cover named him, along with Clinton-era
Treasury secretaries Robert Rubin and Lawrence
Summers, the "Committee to Save The World"). So,
when he somewhat surprisingly reversed his legacy
and image of fiscal prudence, the inherent
instinct of elites to give their constituents
something for nothing immediately became
paramount. The tax cuts passed easily, 230-198 in
the House of Representatives, 62-38 in the Senate.
Today, he says that it was all just a big
misunderstanding. In his book, he claims that,
very much in contrast to press reports at the
time, he supported the tax cuts only in the
context of them being part of a package of fiscal
controls that would ensure that Congress would act
prudently on spending. "The tax-cut testimony
proved to be politically explosive. While politics
had not been my intent, I'd misjudged the emotions
of the moment."
For one who spent so many
of his formative years in the world of music, it's
surprising that he fails to realize just how
shallow his "I'm just the piano player in the
whorehouse" defense in this matter really sounds.
Near the end of the first section of the
book, Greenspan at last addresses the current
crisis in subprime mortgages; the two or three
pages devoted to the issue give the impression
that Greenspan's editor, Scott Moyers of Penguin,
had one of those 1930s movies about the newspaper
business moments, wherein the ink-stained editor
gets up from his rickety chair, lets his half
chewed and smoked stogie fall from his lips as he
cries "stop the presses".
Many current
commentators have noted that it was Greenspan's
remarkably low short-term interest rates, with a
Federal Funds target rate at 1.5% or lower from
November 2002 to September 2004, that stoked the
subsequent housing boom and current crash.
Greenspan will hear none of this, either.
He is proud that his low interest rates allowed
the American dream of private home ownership to
become available to so many first-time homebuyers.
As for the time immediately prior to his departure
from the Fed in January 2006, when it became
obvious that US real estate prices were advancing
at a rate far in excess of any rational
justification or economic fundamentals: "The Fed
tracked such developments closely."
Be
that as it may, there is absolutely no evidence
that the Greenspan Fed chose any further
regulatory action other than making sure that they
"tracked such developments closely". They could
have initiated increased regulatory supervision of
Fed member banks such as Countrywide Financial
that were obviously involved in stirring up the
froth, maybe even taking the bankers in for a good
serious talking to.
That might have helped
to steer the mortgage industry from driving right
off the subprime lending cliff onto the rocks it
finds itself occupying now. If they were really
serious, they could have ordered banks to hold
higher reserves against mortgage loans,
diminishing the banks' ability to make more of
them. None of these policy options were chosen.
The machine by which these private markets were
generating wealth was apparently too sacrosanct
for Greenspan to toss his powerful monkey wrench
into; better to leave it to his successor, Ben
Bernanke, to clean up the mess.
It's
always fun to have circus animals come to your
house to entertain at your kid's birthday party,
especially when you know you can leave it to
someone else to mop up the unpleasant dross left
behind.
For the final 200 pages or so of
his autobiography, Greenspan departs from the
standard autobiographical form in that there's
nothing very much autobiographical about them at
all. They consist of a series of essays on various
topics (Russia, China, Latin America, energy
demand, government old-age entitlement
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