The Age of Turbulence

Alan Greenp published “The Age of Turbulence: Adventures in a New World” on September 17, 2007 and the first half of the work is an autobiographical chronology of his life. It gives readers a chance to view the people and circumstances that can help and guide Greenp as he grew up.

The second half of the book states the major economic events that have occurred over the past half century. He details his life under different U.S. Presidents as well as economic systems including the Marxist Communism, Populism, as well as Market Capitalism.

According to Greenp, free market capitalism is the economic approach that will trump other approaches. Based on Adam Smith’s ‘invisible hand’ which is the people’s motivational self-interest which is important in his view of building a successful economy.
In the book he discusses the fast historical growth of the U.S. economy under the market capitalism as well as its benefit to the other foreigners. Interspersed in the material is Greenp’s lack of quality public secondary education for the masses especially in the field of sciences and mathematics and it role in the divergence of rich and poor in the U.S.
Greenp hits hard as he criticizes President Bush, VP Cheney and Republican-controlled Congress for abandoning the traditional tenets of fiscal discipline. Included in his argument is the President’s refusal to veto new Federal legislation which increases the spending easily. According to him, Bush approach has been one of “conflict avoidance” and attending to political agendas leaving no room for reason.
It is President Gerald Ford whom he praises above all the other presidents including former President Clinton calling his governance as characterized as a consistent disciplined focus on long-term economic growth.” Even at the age of 81, Greenp has strong opinions about several issues and is saddened that it is politically difficult to admit that in truth, the Iraq war is mainly about oil. His comments about the war can be shocking as he reveals that there could be about 1.2 million people could have died because of this conflict in Iraq.
According to a Washington Post columnist, people will most likely agree that Greenp’s greatest contribution is that of the policy maker who, “through the power of his office, the force of his intellect, and the cunning behind-the-scenes maneuvering, engineered the wholesale deregulation of the US banking and financial system”.
With regard to legacy, his most important legacy is that of making the US economy “more prone to asset bubbles, corporate scandals and financial crises, but robust enough to absorb such shocks while continuing to deliver long-term economic growth” (Pearlstein, 2006, p. D01).
He was elected to third consecutive term in 1996. One of the highlights of this term is said to be the crucial role he played during the financial crisis that hit Asia and Russia.
With the world financial system under threat, Greenp is said to have gone against the conventional wisdom of raising interest rates, and instead convinced his Fed colleagues to do the reverse and support him in pushing for three consecutive interest rate cuts. That unexpected move is said to have been instrumental in pumping capital flows into the world economy and averted a recession in the US and many parts of the world.
Moreover, Greenp is said to have collaborated with the then secretary of the treasury Robert Rubin in inspiring confidence in the national economy, so much so that in 1998, unemployment levels were at 24-year lows, inflation levels were at 11-year lows, and consumer confidence was highest compared to the past 30 years.
According to a Washington Post columnist, people will most likely agree that Greenp’s greatest contribution is that of the policy maker who, “through the power of his office, the force of his intellect, and the cunning behind-the-scenes maneuvering, engineered the wholesale deregulation of the US banking and financial system”.
With regard to legacy, his most important legacy is that of making the US economy “more prone to asset bubbles, corporate scandals and financial crises, but robust enough to absorb such shocks while continuing to deliver long-term economic growth” (Pearlstein, 2006, p. D01).
Some examples demonstrate the Greenp standard in action. From 1994 to early 1995, for example, Greenp was said to have launched a series of preemptive moves to tighten the monetary policy to ward off the threat of a trend towards rising inflation, in the form of increased interest rates. While the move to raise rates were said to have initially shocked the market, such moves were said to be a clear statement of the Fed’s seriousness to tame inflation.
As a testament to his flexibility, he then eased rates towards late 1995 when the economy showed signs of abrupt weakening, thus pumping money into the economy and avoiding a slowdown in economic activities (Yu, n.d., p. 5).
Another example of Greenp’s prescience was in 1998, when the Fed introduced rate cuts in three consecutive months from September to November, amidst signs of an economic slowdown. Such moves are said to have influenced European central banks to make similar rate cuts to avert a greater slowdown in the economies of Europe.
Virtually every intellectual sector in the United States and the rest of the world has heaped praise on the singularly successful steering of monetary policy by Alan Greenp during his term as chairman of the US Federal Reserve Board. Blinder and Reis, in a paper out of Princeton notes the following:
No one has yet credited Alan Greenp with the fall of the Soviet Union or the rise of the Boston Red Sox, although both may come in time as the legend grows. But within the domain of monetary policy, Greenp has been central to just about everything that has transpired in the practical world since 1987and to some of the major developments in the academic world as well (Blinder and Reis, 2005, p. 1).
Indeed, the book examines his views on these issues. To wit, Greenp presided over an era marked by the Black Friday stock market crash in 1987, the wars in Kuwait in 1990 and the Iraq war in 2000, a global financial crisis in 1997 and 1998, “the biggest financial bubble in history”, a productivity growth turnaound that started in 1995, and the threat of deflation in 2003 (Blinder and Reis, 2005, pp. 1-2), and successfully hurdled them all to the benefit of the US and world economies.
On the other end, some quarters have also been critical of the tenure of Alan Greenp. One quarter argues that Greenp leaves the Fed with a legacy of debt that will have long-term adverse impacts on the US and world economies. Specifically, a study notes that such a legacy of debt by Greenp has “potential adverse consequences”.
Basically, the line of reasoning is that foreign creditors could start to question how America will be able to pay future interest and dividend payments without resorting to “printing dollars”, and such could result on a run on the dollar. The run on the dollar can then lead to a rise in interest rates, which could hurt the housing market and cause mortgage defaults to rise. Such a rise in defaults could then cripple the banking system, making Federal rate cuts less effective in steering the economy.
I think that on balance, those who have been heaping accolades on Mr. Greenp’s performance at the helm of the Federal Reserve Board have reason to do so. The Greenp era was one that was characterized by the singular success of the policies of Mr. Greenp to steer the US economy to its current state of prosperity.
Basically, my take on the Greenp standard is that Mr. Greenp’s policies are based on intelligent, period-by-period assessments of the state of the economy, and making adjustments to monetary as needed, discarding old assumptions that are not in tune to reality and keeping close tabs to what is actually happening moment by moment. The Greenp standard seems just another way of saying that Mr. Greenp kept a close watch of the economy and did everything at his disposal to make sure that monetary policy is cautiously and prudently managed.
The criticism regarding Mr. Greenp’s legacy as one of it being a legacy of debt is simplistic. The argument is predicated on the withdrawal of trust by creditors in the ability of the US to pay its debt obligations, and on the collapse of the housing market. It is simplistic because it fails to consider that the macro economy is dependent on factors other than housing.
Also, it is simplistic because the argument does not take into consideration the probability of a debt default happening, which is the main event that detractors say will touch off a series of cascading effects leading to the weakened ability of interest rates tweaking in controlling the economy.
He mentions in the book that the rate of technological innovation is slowing down. He is pessimistic about the prospects that the United States is facing. He is able to predict that there are advances in the information technology and this will permanently increase the economy’s growth capacity.  Greenp was able to keep interest rates low so that the economy could reach its potential. Greenp was vindicated because in the years after that, the productivity figures started rising consistently.
By and large, Greenp’s memoir is an interesting read that makes readers enlightened about his life in the context of the Sept. 11 bombing. He is a man who also influenced the nation as he traces his early roots, as well as his training as an economist and finally his job as the Fed Chairman.
His experience in the dotcom era manifests to him that the best way to control a speculative boom is to prevent it from developing from the very start. What makes the book an engaging material is the fact that he relied on the use of formal mathematical models together with a set of assumptions that can be identified with data. He stated his own predictions about the future and concluded that in the end, it is man’s ability to transcend the sufferings and trials that ultimately matters in the end.
REFERENCES
Blinder, A.S and Reis, R. (2005). Understanding the Greenp Standard. Princeton University. Retrieved April 6, 2008 at: http://www.kc.frb.org/PUBLICAT/SYMPOS/2005/PDF/BlinderReis.paper.0914.pdf
Greenp, Alan. The Age of Turbulence: Adventures in a New World. Allen Lane (17 Sep 2007)
Pearstein, S. (2006). The Laissez-Fairest of them all. Washington Post. 20 January 2006. Retrieved April 6, 2008 at: http://www.washingtonpost.com/wp-dyn/content/article/2006/01/19/AR2006011903180.html
Yu, H. (n.d.). Alan Greenp. University of Florida. Retrieved April 6, 2008 at: http://bear.cba.ufl.edu/demiroglu/fin4504fall2004/Articles/Greenp.pdf