For the capital markets crowd, Alan Greenspan is the equivalent of Greta Garbo. Like the enigmatic actress, he cultivates an inscrutable veneer, punctuated by cryptic comments. Greenspan reportedly proposed three times to his wife, former White House television correspondent Andrea Mitchell, before she realized he was talking marriage. And he once quipped, to someone who asked how he was, that he wasn’t allowed to answer such questions.
During the annual holiday lull in business activity, there are two new books—both focused on Greenspan and the intricate economy he manages—that should be required reading for those gearing up for 2001. That is especially true in light of the recent forecast, by the economics department at the University of Chicago, that the North American economy is headed for a hard landing in the new year.
It’s no exaggeration to suggest that, despite his deliberately low-key persona, Greenspan, as chairman of the U.S. Federal Reserve Board, is the most influential economic figure in the world. His every word is analyzed for nuances that may indicate the future direction of key interest rates. Last week, he did it again: in typically bland language, he told an American banking conference he was convinced a U.S. economic slowdown is at hand, leaving certain major sectors vulnerable to unexpected shocks. Hardly an earth-shattering insight, but markets briefly soared on the perception that these cautious words indicate the Fed is about to shift to a neutral from a tightening bias in its rates policy. And that Greenspan may even be poised to cut them.
To grasp just how carefully Greenspan considers every word he utters in public and every move he makes, readers should first turn to author Bob Woodward’s new book, Maestro: Greenspans Fed and the American Boom. Woodward, probably the best-known investigative journalist of the last quarter-century, has clearly had unusually open access to Greenspan and his circle. And the book, although supremely uncritical of Greenspan’s four-term tenure as Fed chairman, presents a fascinating behind-the-scenes account of life at the epicentre of the economy.
Although Greenspan has deliberately cast himself as a grey bureaucrat, Woodward describes a man with tremendous political savvy, diplomatic skills and raw power. He is a great listener, “who nearly always learned more from the people who came to hear him speak than they learned from him.” As an economic consultant prior to his Fed appointment, he built an important network of corporate contacts, which he still uses as a source of information and a sounding board for policy decisions. A lifelong Republican, Greenspan nevertheless managed to build a successful working relationship
with Democrat Bill Clinton, convincing him of the need to address the U.S. budget deficit early in his first term in office.
Maestro is an especially riveting read for those seeking some of the history and context for todays often-confusing economic scene. In tracking Greenspans Fed career, which began just 72 days before the market crash in October, 1987, Woodward covers the critical events that have shaped policy and business conditions through the 1990s. He also details the Fed leader’s epic struggle to comprehend and adapt to the new parameters of a technology-driven economy. At 74, Greenspan is the ultimate Old Economy theorist. But through his constant attention to the most minute detail, including hourly checks of key economic indicators and charts, he has managed, so far, to contend with rapid and unprecedented growth, curbing his urge to squelch it with rate hikes.
But it’s in Woodward’s accounts of backroom dealings, such as the Fed-orchestrated bailout of Long Term Capital Management in 1998, when he is at his best. He describes the Fed’s secret involvement in attempting to negotiate a rescue that would prevent U.S. markets from being dragged down by the scandal. The whole episode remained well under wraps at the time, Woodward notes, in part because of the media’s singular focus on Clinton’s affair with Monica Lewinsky.
Still, it’s probably best to read Maestro in conjunction with another book, The Coming Internet Depression, by economist Michael Mandel. This dense but compelling volume picks up the story of the North American economy and its management precisely where Woodward leaves off. While many experts hold that technology and the New Economy eradicated the traditional business cycle, Mandel argues convincingly that it has only been altered, not eliminated. And he is particularly wary of the “almost religious faith in the power of the central bank to stop the U.S. from slipping into another recession.”
Mandel, in fact, says we may now be coasting in a deceptively calm interval “between the end of euphoria and the onset of what classic writers called revulsion and discredit.” At such a time, it’s both reassuring and alarming to know we’re not alone. According to Woodward, Alan Greenspan is also baffled by markets and their relationship with technology. His personal motto at the Fed is this: “If you’re not nervous, then you shouldn’t be here.” As Christmas gifts, neither one of these books will invoke comfort or joy in the recipient. But the new year is always the time when the bills must be paid for all those happy holiday times. As Mandel suggests, the same may now be coming true for the end of North America’s happy economic times.
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