Sunday, September 16, 2007

“The Republicans in Congress lost their way.”

Greenspan Lets It Rip
The Age of Turbulence: Adventures in a New World

Pulling no punches, retired Federal Reserve Chairman Alan Greenspan in a memoir to be published tomorrow, The Age of Turbulence: Adventures in a New World, speaks candidly of his time as Fed Chair, the presidents he served with, and lays out his vision for the future. Greenspan, 81, was chairman of the U.S. central bank from August 1987 until January 2006. He was the second-longest serving chairman in the Fed's 93-year history.

Like any memoir, there are attempts to rewrite the past, most notably Greenspan's claim to have preemptively wanted to raise rates in 1997 against a possible future stock-market bubble, instead of having slashed rates and kept them there, thus fueling and being directly responsible for the housing bubble:


Mr. Greenspan won plaudits for achieving low inflation and unemployment with just two mild recessions during his tenure at the Fed. But more recently his record has taken some knocks. Some critics fault him for not doing more to restrain the stock bubble of the 1990s, and for responding to its eventual bursting with such low interest rates that housing prices subsequently soared.

Mr. Greenspan writes that in early 1997, he told his colleagues the Fed should raise interest rates as a "preemptive" move against a stock-market bubble. But transcripts of Fed meetings from that period do not support his book's version of events: They show Mr. Greenspan argued for a rate increase principally because of inflation.
But this is quibbling.

Many economists including many opposed to Mr. Greenspan, as well as other observers (including myself) believe market forces would have resulted in low interest rates anyway, that Mr. Greenspan was correct to lower rates as inflation was -- and always is -- an enormously greater risk than any bubble in a single sector.

Notes from the Fed as well as what little public record Greenspan left behind -- surprisingly little, actually; the man raised avoiding talking on the record to a fine art, as he put it, “mumbling with great incoherence” -- bear out this view, that Fed Policy in Greenspan's last years was to keep inflation under control now no matter what, and deal with a bubble if and when, later.

Greenspan also begins to come clean about what many of us believe to be one of his most serious errors, interjecting himself into politics with his support of the Bush tax breaks of 2001.
NY Times

Though he does not admit he made a mistake, he shows remorse about how Republicans jumped on his endorsement of the 2001 tax cuts to push through unconditional tax cuts without any safeguards against surprises. He recounts how Mr. Rubin and Senator Kent Conrad, a North Dakota Democrat, begged him to hold off on an endorsement because of how it would be perceived.

“It turned out that Conrad and Rubin were right,” he acknowledges glumly. He says Republican leaders in Congress, made a grievous error in spending whatever it took to ensure permanent Republican majority.

Mr. Greenspan has critics as well, and they are likely to weigh in as soon as the book is published. Though he publicly disagreed with Mr. Bush’s supply-side approach to tax cuts, urging Congress to offset the cost with savings elsewhere, he refrained from public criticism that could have shifted the debate. His willingness to criticize now, 18 months after leaving office, may open him to the charge of failing to speak out when it could have affected policy.

Today, Mr. Greenspan is both indignant and chagrined about his role in the Bush tax cuts. “I’d have given the same testimony if Al Gore had been president,” he wrote, complaining that his words had been distorted by supporters and opponents of tax cuts.
And then there's the presidents. Greenspan makes assessments as sharp of presidents as he does of markets.

From serving under so many presidents, Mr. Greenspan concludes that there's something abnormal about anyone willing to do what it takes to get the job. Mr. Ford, he writes, "was as close to normal as you get in a president, but he was never elected." The Watergate tapes, he says, show Richard Nixon as "an extremely smart man who is sadly paranoid, misanthropic and cynical." He recalls telling someone who had accused Nixon of anti-Semitism that he "wasn't exclusively anti-Semitic. He was anti-Semitic, anti-Italian, anti-Greek, anti-Slovak. I don't know anybody he was pro."

Ronald Reagan's ability to instantly tap one-liners and anecdotes in support of a particular policy represented an "odd form of intelligence." He describes Bill Clinton as "a fellow information hound" with "a consistent, disciplined focus on long-term economic growth" whose relationship with Monica Lewinsky "made me feel disappointed and sad." (Fortune Magazine)

when Greenspan asserts that Richard Nixon and Bill Clinton were "by far" the smartest Presidents he worked with, those two little words say quite a lot about Gerald Ford, Ronald Reagan, and a couple of guys named Bush.

Surprisingly for a self-described "lifelong Republican," Green­span was happiest as Fed chairman when Clinton was in the White House. (He also liked his time running Ford's Council of Economic Advisors, where it was his pleasant responsibility "to shoot down harebrained fiscal policy schemes.")

With the first George Bush, Greenspan had what he calls a "terrible relationship."

He faults the administration of Bush II for a ­decision-making process driven entirely by political calculation.

By comparison, he found the Democratic interregnum sandwiched between two slices of Bush a version of Periclean Athens, where dedicated men (Bob Rubin, Larry Summers, Clinton, himself) made decisions in the nation's long-term interest.
NY Times

He praises President Bush for letting the Federal Reserve stay independent of political pressure, saying he was scrupulous in not trying to interfere with monetary policy — which he contrasts sharply with the pressure exerted by his father, George H. W. Bush, in the early 1990s. For years the first President Bush has blamed Mr. Greenspan for contributing to his defeat in 1992 by failing to prevent a recession by cutting interest rates.

Of the presidents he worked with, Mr. Greenspan reserves his highest praise for Bill Clinton, whom he described in the interview as a sponge for economic data who maintained “a consistent, disciplined focus on long-term economic growth.” It was a presidency marred by the Monica Lewinsky scandal, he writes, but he fondly describes his alliance with two of Mr. Clinton’s Treasury secretaries, Robert E. Rubin and Lawrence H. Summers, in battling financial crises in Latin America and then Asia.

By contrast, Mr. Greenspan paints a picture of Mr. Bush as a man driven more by ideology and fulfilling campaign promises made in 2000, incurious about the effects of his own economic policy, and portrays an administration incapable of executing policy. Mr. Greenspan describes the Bush administration as so captive to its own political operation that it paid little attention to fiscal discipline, and he described President Bush’s first two Treasury secretaries, Paul H. O’Neill and John Snow, as essentially powerless.

Mr. Bush, he writes, was never willing to contain spending or veto bills that drove the country into deeper and deeper deficits, as Congress abandoned rules that required that the cost of tax cuts be offset by savings elsewhere. “The Republicans in Congress lost their way,” wrote Mr. Greenspan, a self-described “libertarian Republican.”

“They swapped principle for power. They ended up with neither. They deserved to lose” in the 2006 election, when they lost control of both the House and Senate.
This book has two halves. The first, an engaging two-decade look at his term as Fed Chair. Not to be missed, he lays out with candor and verve, how he used the power of the Federal Reserve, growing stronger and more assured with practice, to lead up to the strongest peace-time expansion of wealth and prosperity the world has ever known. Genuinely fascinating stuff.

The second half (more like a third) of the book, is Greenspan's "foundation on which to erect the conceptual framework for understanding the new economy." Oh yeah baby. Do me. Do me hard. [That was my imitation of Greenspan attempting snark. Um, never mind. The last part's boring as hell unless you're a market nerd, okay?]

Markets trembled when this man sneezed. He's 81 and still can bring heat right over the plate:

"They swapped principle for power. They ended up with neither. They deserved to lose."


Greenspan always did leave people, markets and heads a-spinning. Perhaps that's why he called his book, the The Age of Turbulence?

Serve it up Mr. Greenspan. Take us for a ride. Recommended.