Book review: The Age of Turbulence

Andrew Williams reviews Alan Greenspan's 'The Age of Turbulence', an account of global economic change

The Age of Turbulence

By Alan Greenspan (2007)

Last week Mervyn King, the Governor of the Bank of England, announced the base interest rate in the UK would fall from 5.5% to 5.25%. Also this month, Ben Bernanke, his counterpart in the United States , announced that he would be lowering its base rate by 1.25%.

Financial markets have come to rely on the friendly intervention of Central Banks to lower the price of credit and pump liquidity into the economy whenever times get tough.

Their minds have been conditioned to think in this way party because of Alan Greenspan - Bernanke's predecessor as Chairman of the Federal Reserve and inventor of the so-called "Greenspan put".

After the 9/11 attacks in New York and in the wake of the dot-com bust, Greenspan made cut after cut in US interest rates. At the time, this saved the US economy from a deep recession.

However, the interest rate cuts and injections of liquidity in open-market operations by the Fed, have now been cited as the cause of the long-boom in rising asset prices, fuelled by cheap credit. In particular, the charge is laid at his door that he enabled the conditions whereby poor families in the US (sub-prime borrowers) were lent mortgages they simply could not afford, as soon as interest rates started to rise again to counteract against inflation.

It was not always this way. Until 9th August 2007 (the day the credit crunch crunched) Greenspan was everyone's hero, and to me he still is.

His book, 'The Age of Turbulence' is the single most lucid narrative on the development of the global economy over the last 20 years.

The first half of the book is an autobiography of Greenspan's life - from geeky maths kid to economic superguy. Along the way, he became a professional musician, playing the saxophone and clarinet and an expert on baseball. He started his own economic consulting firm and became an adviser to Presidents Nixon and Ford.

Greenspan was a disciple of a number of other economists including Adam Smith, Ayn Rand, Arthur Burns and Joseph Schumpeter. From Smith, he became a staunch believer in the power of free markets. From Schumpeter, he understood the benefits of 'creative destruction' whereby economy forces in ending the era of one industry, could hail the birth of another.

The second half of the book, as well as the introduction, is a review of the key economic phenomena of since before the fall of the Berlin Wall. It is more illuminating that any macro-economic text book I have read.

Greenspan explains the role of emerging markets and puts the growth of the Chinese, Indian, Russian, Asia-Pacific and South American economies in context.

He talks about the importance of the rule of law and the state protection of private property rights as key to giving economic actors the confidence that their transactions will not be undermined by corruption, thus reducing risk premiums to a minimum.

He always explains the economic forces unleashed by political events such as the collapse of communism 9/11 and what happens when the irrational exuberance of investors, such as in the dot-com bubble, proves unfounded.

Economists like Greenspan, Bernanke and King seem at first sight to be dusty academics and impossible to relate with. However, in a world where we are all pebbles in the ocean of the global economy, they become gods.

For anyone applying to jobs or buying stuff - from a house to a pair of jeans - interest rates matter. They not only set the price of credit if you make a purchase using debt , they determine the very price of the asset in the first place and set the overall tone for the economic climate.

Greenspan has probably had a greater effect on your life than any other public figure in the last 10 years. For that, his book his worth reading.

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