Allan Greenspan’s Age of Turbulence

The Age of Turbulence (TAT) chronicles Greenspan’s career and explains his beliefs in capitalism and outlines the seeds of turbulence that cloud the world’s future. His scholarship is irrefutable and his infinite abundance of hands-on experience with the world’s governments (from Nixon to date) and with the largest corporations is unprecedented; these, in concert, afford perspectives and wisdom far beyond our ken. To sit at the toe of such a guru, as we do by reading his book, is a rare privilege indeed. While his prose lacks the elegance of his mind, they are lucid, laconic and devoid of the “Fed Speak” for which he became known and which inspired endless humorous barbs. His book, in striking contrast, lays the economic and political issues bare, in unmistakable, declarative sentences, edifying all who read it. He allows the reader to visit 50 years of history in a personal way, providing personal anecdotes about, and insights into, many of the world’s most prominent persons, their strengths and weaknesses, with delicate and respectful candor. TAT is a layman’s guide to comprehension of the world’s most complex issues.

Allan Greenspan served as Chairman of the Council of Economic Advisors under several Presidents and as Chairman of the Federal Reserve Board (1989-2006); he is an oxymoron: a capitalist of The Old School who survived as a key policy maker in every Presidential administration from Gerald Ford to the George Bush II. His principal mentors were Adam Smith, author of the iconoclastic Wealth of Nations, which treatise advanced capitalism and free markets as the most efficacious road to national wealth and began reshaping the world’s governments upon its publication in 1776 and provided many of the seeds for the U.S. Constitution, John Locke (1632-1704), a giant among the British moral and political philosophers, who articulated the core notions of “life, liberty and property”, and the renowned Ayn Rand, author of Atlas Shrugged, The Fountainhead, The Virtue of Selfishness, We The Living, and similar works, and Milton Friedman and various “libertarians” (devotees of capitalism, property rights, hard money, free trade, minimal government interventions, etc.). Greenspan was among Rand’s most devoted students and followers.

He evinces grave concerns over the future of the U.S. Dollar and currencies in general. He quotes John Maynard Keynes (1919) statement: “Lenin was right. There is no surer means of overturning the existing basis of society than to debauch its currency…[when done] in a manner that not one man in a million can detect.” He extols the growth of China and India, noting that both are inexorably becoming more capitalistic every day, but notes that China’s progress is slowed by its fixed currency, and he finds India both capitalistic and communistic, as the laboring class and bureaucrats rule obsessively, requiring licenses and permits for virtually every transaction, crippling growth, while its heralded IT (information technology) sector, however competent, accounts for less than 1% of its work force.

Among his primary theses are “globalization and regulation”. He defines globalization as “the extension of capitalism [and free trade] to world markets”, arguing that the benefits far exceed the costs. The loss of jobs in steel, autos and textiles, for example, resulted in a shift of employment to computers, telecommunications, and information technology, which was a plus, not a minus. Trade barriers simply delay those unavoidable adjustments and render them much more painful when they occur, and the short term benefits of trade barriers are muted, as the world finds ways to work around higher cost labor. The founders of the U.S. Constitution asserted that free trade encourages risk-taking and capitalism and, as a result, promotes democracy, just as democracy should promote free trade; and the less free trade the greater the economic stagnation and political authoritarianism.

“The world retires, but can it afford to,” he queries. “The battle for workers [globally] has already begun…This tectonic shift is truly a 21st Century problem.” Retirement is a relatively new phenomenon. In the past, most people died before retirement. By 2030, an estimated 30% of the Western world’s population will be over 65 (up from 20% now), while the workforce to support them is not growing – only 1%/year now which will decline to only 0.3% by 2030 – providing no where near enough workers to support the retirees. No legislation can provide the economic resources to meet the needs of future retirees. In just 15 years, Medicare costs alone are projected to consume 25% of Federal Income tax benefits. Social Security is also a problem but not nearly as severe, as it is a “defined benefit” program; Medicare has no such ceilings. Raising taxes cannot solve this problem, because, at some point, tax increases so curtail investment (the incentive to take risks) that economic growth and corresponding tax revenues shrink. Medicare shortfalls can be resolved only by “rescinding the benefits of the more affluent” and the latter must be defined broadly. Self-help, once again, is the solution. “The world has no choice. Demography is destiny.”

Greenspan’s dissertation on the oil crisis is among the most interesting facets of his excellent commentary. He notes that the historic increases in the price of a barrel of crude oil (e.g., from $1.80 in the 1960’s to $11 after the oil embargo in 1973, to $39 by 1981 ($77 in 2006 prices) to $75 in 2006 (when he published his book) to $150 by summer 2008) are not the result of price gouging by oil companies or of speculators’ activities but simply reflect market forces. Oil production continues to expand more slowly than consumption; disruptions, like hurricanes Katrina and Rita that gutted oil production in the Lousiana-Texas corridor or 9/11 or wars in the Middle East, continue to jeopardize oil supplies; oil refineries have not kept pace with oil demands, as they are costly to build and take 30 years to recover investment; many other threats loom: Israeli-related wars; Iran could block the Strait of Hormuz, the artery through which 20% of the world’s oil is shipped. Only increased American oil production and alternative energy sources promise material relief from the bleak future of oil supply and prices. While the future is always problematic. The U.S. Department of Energy now predicts midcentury as the time when petroleum production will peak worldwide; if so, by century’s end, oil will no longer meet the world’s energy needs. Of course, market forces will likely end it long before that, as prices will soar in anticipation of the end. Thus, Americans need to curb oil consumption, but they have proven that they won’t do unless forced (such as by Nixon’s gas rationing). One way, he suggests, is to impose a tax of $3/gallon and faze it in over a five to ten year period. (Ch. 24) The very stability of the industrial and global economies remain at risk of derailment by the lack of affordable oil. Bush was right when he called it “our addiction to oil”.

Is “global warming a myth” or a serious problem? Those seemingly in The Know disagree. Greenspan says, “Global warming is real and man made…Nuclear power is a major means to combat global warming…[and] pernicious CO2 emissions…Glacier National Park will lose its glaciers by 2030…”

Greenspan’s greatest fears for America revolve around property rights: “America’s unrivaled protection of property rights has long attracted foreign investment.” He lauds the Constitution as “critical to the prosperity of our nation,” but he sees increasing regulations on many fronts, a corresponding erosion of private rights and potentially draconian taxation, which, in combination, could remove America from its position as the world’s leading economy.

What beliefs did our Founding Fathers, to which Greenspan and Milton Friedman added more layers, share in common? A conviction that the prosperity and peace of nations and, hence, mankind, was dependent upon permitting the accumulation of capital by individuals, free trade to permit all to share in the prosperity of honest labor, individual rights that were protected by accepted laws (which allow people to own and dispose of their property freely), the rule of law, division and specialization of labor, and, so important, a limited and circumscribed role for government. He quotes Ronald Reagan: “Governments exist to protect people from each other, not to protect them from themselves.” The importance of self-interest and the acceptance of the postulate that profits are not immoral are, indeed, the vortex of man’s willingness to work and work hard and, thus, constitute the cornerstone of a free society, one that will work willingly to maximize its potential. He concludes, “The government should provide freedom and stability and then stay out of the way…Too much government destroys personal freedoms…”, which recalls the remark of Ronald Reagan in his Second Inaugural Address, “The government isn’t the solution to the problem; the government is the problem.”

Greenspan’s book, in sum, is not labored with technical jargon or “Fed Speak”; to the contrary, it is an eminently user-friendly book, comprehendible by most anyone, and it is a MUST READ for anyone who would like to sit at the toe of the wisest economist of our times, even though his unassailable, libertarian logic is a non sequitur today, totally out of step with all Presidential candidates (save Mitt Romney and Ron Paul). Lou Dobbs, of CNN fame, should read it as well and invite Greenspan on his show. Dobbs and the candidates have zero understanding of the laws of economics, yet their voices influence the mobs that choose our leaders. As Plato lamented, “In democracy, fools rule,” and, today, the sagacity of Greenspan is ignored. We owe it to ourselves and to our peers to bask in the light of Greenspan’s empirical data, profound wisdom and unemotional prescience. Lee Lovett 06/2008