[This review was published in the Winter 2010 issue of The Journal of Social, Political and Economic Studies, pp. 516-528.]



Book Review


The Age of Turbulence: Adventures in a New World

Alan Greenspan

Penguin Books, 2008


          This is in effect a memoir of Alan Greenspan’s professional life.  Only in part (and by virtue of an Epilogue) does it deal with the financial crisis that hit in August 2007, some nineteen months after he retired from his position as chairman of the U.S. Federal Reserve Board.  But because Greenspan was a leading figure in world central banking during his eighteen-plus years as chairman, and because those years included the period leading up to the financial crisis, this book deserves a prominent place among those that discuss the crisis and its causes.

          The main portion of this book was published in June 2007, just weeks before the crisis became evident. The Epilogue, written a year later but still three months before the crisis reached its apex, was added for later editions.  Although it does not appear in the book, Greenspan’s testimony before the U. S. House of Representatives’ Committee on Oversight and Government Reform in late October 2008 provides still a third window into his thinking.  It was in that testimony that he acknowledged trepidation about some of the premises that had long guided his economic philosophy.

          There is much to be mined from this book – far more than we will be able to discuss in this review.  The main stem, as just indicated, is a memoir, but it also surveys a number of topics for their own sakes.  For example, there is a chapter on the fall of Communism, another on the Clinton administration’s economic policies, and chapters on the situations of China, Russia, Britain, Germany, France, Italy, Japan, Australia, the “Asian Tigers” and India.

          Greenspan was born in 1926.  His parents’ families, Jewish and lower middle class, had immigrated to the United States from Romania and Hungary at the turn of the century.  He attended New York City’s George Washington High School, which he describes as “one of the city’s largest and best public schools,” after which he obtained  his undergraduate degree in economics summa cum laude from New York University in 1948, followed by an M.A. there two years later.  His brilliance became apparent early, manifesting itself in his love of math and music, and his ability to master data.  He studied under later-Fed chairman Arthur Burns at Columbia, but became so busy working in various aspects of economic data analysis and econometric model-building that he didn’t follow up with his doctorate (again in economics and from NYU) until the 1970s.  He wound up serving on the JPMorgan board, was chairman of the Council of Economic Advisors under President Gerald Ford, and headed a commission on Social Security reform for President Reagan. He was appointed chairman of the Federal Reserve in 1987, retiring in January 2006.

          Greenspan’s personal characteristics provide a fascinating mixture. He immersed himself splendidly in the details of industries and firms, from which he found substantial guidance about the economy as a whole, and joined this with a strong ideological propensity, first as a devotee of the libertarian philosopher Ayn Rand and then, even though he shed some of his Randian fervor, as a “lifelong libertarian Republican” who embraced “unfettered market competition.”  The mixture included, too, perhaps incongruously, an aptitude for mixing congenially with major figures of varied persuasions and politics: for several years, he dated television personality Barbara Walters, whom he met at a tea dance hosted by Vice President Nelson Rockefeller.  When he was married, the ceremony was conducted by U.S. Supreme Court Justice Ruth Bader Ginsburg.  Consistently with this ecumenism, he has held a number of conventional views.  (Even his support for “unfettered market competition” came to be the conventional view during the decades following the start of deregulation under the Ford administration in the mid-1970s.)

          Our interest in this review, however, is not so much in Greenspan’s personal history as in the issues of policy and ideology that emerge from his book. 

The Apparent Insufficiency of Contemporary Monetary Theory and Policy

          The hallmark of the gold standard, Greenspan says, was stable prices.  For some fifty years after the United States left the gold standard, the central bank used “fine tuning” (what this reviewer likes to call the “faucet system” of incremental adjustments to money and interest rates) in an effort to approximate such a result.  Fed chairman Paul Volcker, though, focused during the 1980s on curtailing the quantity of money, consistently with the thinking of economist Milton Friedman.  Friedman favored what Greenspan calls “monetarism by rules,” whereby a set monetary target would be adhered to; but Greenspan himself, as chairman, felt that such a regime would not allow the flexibility needed to deal with a “world economy that has become too complex and interlinked.”  This fine tuning has continued, without notable success, under Greenspan’s successor, Ben Bernanke.

          An especially egregious failure of the “fine tuning” became evident in the easy money policy, manifested in long-sustained low interest rates in the early 2000s, that fed the “bubbles” in first the stock market and then the real estate market.  There are complicated reasons that Greenspan expresses for his belief that the presence of bubbles couldn’t be determined as they occur, and that the unprecedented revolution in technology created a new environment for monetary policy; but it is legitimate to employ hindsight to grasp that the easy credit was a major factor in bringing about the eventual market failure.  There were some who warned of the dangers, and so it isn’t possible to say that “no one could have foreseen” that the policy was unsound.  Although this is true, the frailty of “fine tuning” is apparent.  In the 2000s this was exacerbated by a failure to grasp the perils of the complex new financial architecture, which included the worldwide dissemination of questionable securities.

          Thus, the financial crisis that began in August 2007 and the serious underlying economic problems that are rarely spoken about as the world and a deindustrialized United States seek to pull themselves into a sound posture, have shown this sort of monetary policy to fall far short of what is needed (as would Friedman’s for the same reasons).  It is noteworthy, as showing that a new paradigm is needed, when the head of the world’s leading central bank says, as Greenspan does, that “hands-on supervision and regulation… is being swamped by the volume and complexity of twenty-first-century finance… Efforts to monitor and influence market behavior that is proceeding at Mach speeds will fail.”[1]

            His conclusion, as stated in the main body of the memoir published in mid-2007, was that “we have no sensible choice other than to let markets work.  Market failure is the rare exception….”[2]   The subsequent crash, however, pointed forcefully to the fallacy of counting on “the market” to self-regulate.  In his October 2008 Congressional testimony, Greenspan admitted that “those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief… I’ve found a flaw.  I don’t know how significant or permanent it is.  But I’ve been very distressed by that fact.”  The “modern risk-management paradigm held sway for decades… [but] the whole intellectual edifice collapsed in the summer of last year.”[3]

If in his opinion regulation and central bank controls are dwarfed by the immensity of global finance and if “letting markets work” invites recurrent catastrophes, where are we?  This should be seen as one of today’s great intellectual questions, one that reaches far deeper than “just” the recent financial crisis, but it would seem that the fixations of the past are sufficiently entrenched that a radical rethinking is hardly being broached.  In his testimony, Greenspan voiced his dismay, but he didn’t point toward a new paradigm. The world continues along familiar paths, all the while knowing there are extreme perils along the way.          

Greenspan’s Free Market Ideology

          His faith in “unfettered market competition” pretty well sums up Greenspan’s economic philosophy, although it is worth noting that he sees economic systems as much more subject to instability than does the “efficient market theory” which has been popular among economists in recent years (the theory postulates that a market at any given time incorporates all of the knowledge available to the economic actors).  He sees human nature as prone to intermittent bouts of exuberance and fear, causing unpredictable swings that are based on emotion and herd psychology and not usually on “new information.”  This realization causes Greenspan’s market ideology to fall meaningfully short of the sort of Newtonian perfection postulated by those who are more free-market purists.  (It also shows how in a global financial system, with trillions of dollars sloshing to and fro, “fine tuning,” and even a policy based on set monetary targets, must necessarily be of only limited application.)

          Just the same, before the collapse of his “intellectual edifice,” his thinking took him far toward the purist pole.  Looking out on the new world of “derivatives, collateralized debt obligations, and other complex products,” he was able to say that “the development of [these new] technologies have enabled financial markets to revolutionize the spreading of risk.”  In global finance, “millions of traders worldwide are seeking to buy undervalued assets and sell those that appear overpriced.  It is a process that continually improves the efficiency of directing scarce savings to their most productive investment.”[4]  Hedge funds, he saw, had grown into “a vibrant trillion dollar industry,” and he hoped they would “essentially remain free of government regulation.”[5]  They contribute to the on-going process of “creative destruction” that sweeps away the inefficient and allocates resources to others.  “The purpose of hedge funds and others is to make money, but their actions extirpate the inefficiencies and imbalances.”[6]  At a time when financial institutions were carrying leverage to its utmost extremes (and he was himself warning of “the overpricing of risk”), his free-market philosophy caused him to praise risk-taking as one of a market’s components: “The greater the economic freedom, the greater the scope for business risk and its reward, profit, and thus the greater the inclination to take risk.”[7]

          This enthusiasm for the market led into a number of specifics:  He says he has “long hoped to see Social Security transformed into a system of private accounts.”[8]  He welcomed “government encouragement of subprime mortgage programs [that] enabled many members of minority groups to become first-time home buyers.  This expansion of ownership gave more people a stake in the future of our country and boded well for the cohesion of our nation.”[9]  And he didn’t think it feasible to “address the stock-market boom directly and preemptively.”  “Instead, the Fed would position itself to protect the economy in the event of a crash.”[10]  Still another point was to welcome “a recent financial innovation of major importance… the credit default swap… a derivative that transfers the credit risk, usually of a debt instrument, to a third party.”  He reported that by mid-2006 there were “more than $20 trillion” in CDSs.  The insurers, Greenspan opined, were “highly capitalized institutions… that were well able to absorb the hit.”  The whole process is “critical for economic stability.”[11]  [As we now know, AIG was one of the foremost of these institutions – and, intertwined with a vast number of other financial institutions, crashed, saved only by repeated multi-billion dollar bailouts.]

          Greenspan falls back on one of the truisms of market theory as he presents the conventional justification for the heretofore unheard-of remuneration that some people have been making in finance and the global economy.  He explains that “relative compensation in our society is market determined,” and asks “is there a better arbiter?”[12]  This is in line with the point the Austrian economist Ludwig von Mises made so strongly that in a market system rewards go to those who best anticipate consumer demand.  It is apparent that Greenspan’s economic thought has not included the insights of Henry George, a nineteenth century pro-market thinker who is not listed in the book’s index and who has long been brushed aside by the mainstream of classical and neo-classical economics.  It was George who saw that some, sometimes much, of what is earned is really an “unearned increment.”  Without violence to the principles of economic freedom, George said, this increment could be taxed to provide a fund for the population at large.

          As we’ve seen, a key for Greenspan was that markets were self-regulating.  “We look on the self-interest of our counterparties in trade… The first and most effective line of defense against fraud and insolvency is counterparties’ surveillance.  For example, JPMorgan thoroughly scrutinizes the balance sheet of Merrill Lynch before it lends.”[13]  This applies broadly, but we find him making these points again with regard to hedge funds when he says “the marketplace itself regulates hedge funds today through what’s known as counterparty surveillance.  In other words,” he continues, “constraints are imposed on hedge funds by their high-income investors and the banks and other institutions that lend them money.  Protective of their own shareholders, these lenders have incentives to monitor… closely.”[14] 

In addition to self-interest as a protection, there is the element of trust: he writes of “trust in the word of those with whom we do business – in almost all cases, strangers.”  This goes along with watchful self-interest to create the “prevailing culture in which we live,” without which “little business would get done.” [15]

The vision that a market economy works so well was the basis for the move toward deregulation that began as long ago as the 1970s and that Greenspan, among others, supported so strongly.  He tells us that “deregulation’s economic rationale came primarily from Milton Friedman and the other mavericks of the so-called Chicago school,” but that it wasn’t long before “a remarkable consensus on economic policy emerged in Washington – a convergence of attitudes between the liberal left and the conservative right.  Suddenly everybody was looking to… reduce regulation….”[16]

A reason to recall the elements of this economic worldview is that, as just indicated, Greenspan’s views have not been exclusive to him, but are characteristic of the free-market, free-trade ideology that has prevailed especially since the collapse of the Soviet empire with its demonstration of the bankruptcy of central planning.  One might think this was a fulfillment of a classical liberal’s dreams, but the recent financial crisis has uncovered just how incomplete and simplistic a version of classical liberalism it is.  This is evident when we recall that the causes of the recent financial crisis included, among other things, a failure of regulation, the abuse of leverage as financial institutions clamored toward ever more risk under threat of “losing market share” if they didn’t, the abandonment of fiduciary duty and trust, the dereliction of institutions such as credit rating agencies and elements of the accounting profession, and the failure of contracting parties (“counterparties”) and investors in securities to exercise the due diligence that Greenspan assumed they would. 

The Ideology’s Globalism and Opposition to Local Self-Interest

          The recent consensus favoring free markets and free trade has run in tandem with the rapid expansion of global finance and trade.  “We are living in a new world,” Greenspan writes, “—the world of a global capitalist economy that is vastly more flexible, resilient, open, self-correcting, and fast-changing than it was even a quarter century earlier.”[17]  He speaks of “the current era of life-advancing globalization.”[18]  The globalization is accompanied by the globalist ideology, but arises out of revolutionary advances in information and communications, miniaturization, transportation and financial innovation.

          A major corollary to globalist thinking is an abjuring of local interests.  Greenspan refers derisively to “nativism, tribalism, populism.”[19]  The ideology implicitly accepts – and then makes explicit its endorsement of – a deracination in which national perspectives and loyalties play no role.  This shows up in a number of ways which highlight a world-cosmopolitanism stemming in part from classical and neo-classical economics: 

.  One way is that the country in which goods are produced should be a matter of indifference.  “Many U.S. businesses… have switched in recent years to foreign suppliers.  These companies generally view domestic and foreign suppliers as competitive… To be sure, firms and workers that lose sales will be adversely affected… But,” Greenspan writes, “that is no different from the fallout of domestic competition.”[20]

. Another is that there is no reason to prefer investment in one’s own country to investment elsewhere: “Home bias is the parochial tendency of investors to invest their savings in their home country… However, starting in the 1990s, home bias began to decline perceptibly.”[21]  

. Yet another is to welcome the influx of the peoples of the Third World into the West, a demographic change that a number of serious thinkers have warned is an existential threat to a recognizable Western civilization.  Greenspan speaks very little about this mass immigration (and his not seeing it as a problem is itself significant), but he repeatedly states that there is a shortage of skilled labor in the United States that should be addressed by “the open migration of skilled workers to this country.”  His rejection of “nativism” is apparent in this regard when he says that “we have created in this country a privileged, native-born elite of skilled workers whose incomes are supported at noncompetitively high levels by immigration quotas on skilled professionals.”[22]   

.  He at no point expresses distress over the deindustrialization of the United States, seeing, consistently with a free flow of world capital, that “production shifts, such as the transfer of some U.S. textiles and apparel manufacturing abroad, have freed resources to engage in the output of products and services world consumers value more highly.”[23]  He further justifies the deindustrialization on quite a peculiar ground: he says, after listing steel, autos, textiles and chemicals as examples, that “twenty-first century consumers are less disposed to the products of those industries….”[24]  This is odd because consumers in, say, the United States still partake of vast amounts of cars, clothing (textiles), home appliances, and the like – except that now, all of those things, as consumers shop for them in the stores, are labeled “Made in China” or Bangladesh or Vietnam, or the like.    

.  As labor-saving technology continues to advance, the returns from economic activity will increasingly go, as they more and more have been, to the owners of capital instead of as remuneration to those who supply labor.  Greenspan, however, feels no imperative to assure that any given nation (even his own) experience a flow of income from investment.  Foreign ownership of income-producing assets is seen as of little importance.  This is apparent when he speaks of Australia: “I continually monitor Australia’s current account deficit, which has persisted… with no evident significant macroeconomic impact other than large, increasing foreign ownership of Australian corporate assets.”[25]

.  As we know, the globalist consensus strongly opposes “protectionism” (a shielding of domestic economies from foreign competition), although the consensus is more intellectual among the elite than consistently followed by national governments, which are pushed to respond in varying degrees to local interests and apply assorted double standards.  Greenspan often mentions his opposition to protection, such as when he says that “to the extent that governments ‘protect’ portions of their populations from what they perceive as harsh competitive pressures, they achieve a lower overall material standard of living for their people.”[26]  When, in making such a generalization, he speaks of “their people,” it necessarily cannot be true that he is thinking of all of a country’s population, since the hollowing-out of an erstwhile industrial economy devastates a great many firms and workers.  Greenspan sees the growing inequality of wealth and incomes within the advanced economies, acknowledging that “there is persistent widespread questioning of the justice of how unfettered capitalism distributes its rewards,”[27] but doesn’t see how this casts a cloud over his generalization.  It should be noted, too, that, as is so often the case with economists, he sees “the material standard of living” as almost the sole measure of well-being, excluding the many other aspects of culture and of daily life.  (Oddly, he sees that “creative destruction” upsets many people’s customary lives, but that insight doesn’t inhibit his repeating one of the orthodox tenets of free trade ideology.)

Considerable subtlety about such things would have been introduced into modern economic thinking if along the way the thinking of another nineteenth century economist,  Friedrich List, had not been brushed aside in the same way Henry George was.  List, too,  was strongly favorable to a market economy, but considered legitimate the claims of national interest where they would not be served by a purely open competitive international system.  It isn’t surprising that the index to The Age of Turbulence contains no entry for List.  The difference between List and today’s free trade theory lies fundamentally not in science but in the realm of value judgments.  List considered culture and nationality legitimate concerns, whereas free trade theory, at least in its recent form, has come directly to oppose them. 

Identification with the Cosmopolitan Elite, not with the “Populist” Majority

One of the remarkable features of the globalist ideology is that today’s supporters of “free market capitalism” have reversed the historic position of such supporters vis-à-vis the Marxist postulate about the existence of antagonistic classes.   For well over a century, those who favored a market economy believed capitalism conducive to a nearly universal middle class.  The idea of class struggle seemed to them perverse in light of the realities of capitalism.  But recent years have brought the simultaneous growth of multinational corporations, a polarization of wealth as some people become fabulously wealthy while the incomes of millions of others stagnate, the rise of a cosmopolitan elite in the West which de facto rules politically and economically despite a continuing perception that the will of the majority governs, and the accompanying ideology of globalism and deracination.  All of these form more a single complex than an assortment of separate factors.  The point we would notice now is that the complex is in fact creating the very division of classes that free market advocates have so long considered the product of an alienated critique of a bourgeois society.  It is no longer Marxism or the Left that is introducing class antagonism, but the very apostles of free market theory.  It should be apparent how different the current theory is from classical liberalism as it was so long known.  Many free market supporters continue their loyalty to the form even though the substance has changed radically.

It isn’t apparent how much Alan Greenspan has thought about all of this.  But for whatever reason, he has absorbed the ethos of the new global elite.  This is made especially evident by his many insights, cited above, that seem so strikingly indifferent to the circumstances of the American middle class, and by his oft-expressed opposition to what he calls “populism.”  When we put the many expressions of this opposition together, we find that virtually any policy that ministers to the plight of the public is painted in a straw-man caricature and cast down as populist.

The principles of “economic populism,” he writes, “are simple.  If there is unemployment, then the government should hire the unemployed.  If money is tight and interest rates as a consequence are high, the government should put a cap on rates or print more money.  If imported goods are threatening jobs, stop the imports.”[28]  Elsewhere: “Under economic populism, the government accedes to the demands of the people, [and here comes the caricature] with little regard for either individual rights or the economic realities of how the wealth of a nation is increased or even sustained.”[29]  Greenspan acknowledges that “in recent years, workers see their bosses gaining large bonuses as they themselves get tepid wage increases,” and this leads him to what? – to voice concern that “some will turn to populist leaders….”[30]  Along the same lines: since the “Enron and WorldCom officers’ theft of shareholders’ assets… an anticorporate populism has been lurking….”[31]

An assessment of Greenspan’s thinking on this should, of course, start by acknowledging that it contains a certain portion of the truth.  There is no doubt but that appeals to “the people” can be demagogic and/or misguided.  It will often be true that educated opinion is better informed, both as to facts and to policy, than the public at large.  And it is, indeed, part of the American tradition that the will, at any given time, of the majority must give way to the demands of the overall system of a free society, which gives cognizance and protection to rights that trump majority rule. 

If, however, we place Greenspan’s concern about “populism” in the context of the growing bifurcation of a global elite from the remainder of the population, we come to recognize that his ideology, which covers much ground that goes far beyond his opposition to “populism,” is fully expressive of the outlook and interests of that elite.  Unfortunately, this is much more than an admonition that wisdom should prevail over popular fashion; rather, in today’s context it affirms the political and economic domination of the elite, the increasing polarization of income and wealth, the demographic swamping out of the existing public and Western culture by immigration and offshoring, and the complex of ideas that make up today’s conventional ideology held by those who determine what is and what is not “politically correct.”

By his references to “nativism” and “populism,” Greenspan demonizes those who hold opinions other than his own.  This is unfortunate, since it is precisely an open discussion, marked by civility, that is called for.  Certainly Greenspan ought not himself to be demonized: he’s a man of intelligence and good will who, though he embraces today’s conventional wisdom, is no one’s lackey.  Others deserve the same respect.


                                                                                       Dwight D. Murphey  



[1]  Greenspan, Age of Turbulence, pp. 491-2.

[2]  Greenspan, p. 492.

[3]  Edmund L. Andrews, “Greenspan Concedes Error on Regulation,” The New York Times, October 24, 2008.

[4]   Greenspan, p. 488.

[5]   Greenspan, pp. 370, 372.

[6]   Greenspan, p. 489.

[7]   Greenspan, p. 276.

[8]   Greenspan, p. 215.

[9]    Greenspan, p. 230.

[10]   Greenspan, p. 201.

[11]   Greenspan, pp. 371-2.

[12]   Greenspan, p. 435.

[13]   Greenspan, p. 257.

[14]   Greenspan, p. 370.

[15]   Greenspan, p. 256.

[16]   Greenspan, p. 72.

[17]  Greenspan, p. 10.

[18]  Greenspan, p. 364.

[19]  Greenspan, p. 18.

[20]  Greenspan, p. 358.

[21]  Greenspan, p. 350.

[22]  Greenspan, p. 407.

[23]  Greenspan, p. 314.

[24]  Greenspan, p. 395.

[25]  Greenspan, p. 292.

[26]  Greenspan, p. 269.

[27]  Greenspan, p. 16.

[28]  Greenspan, p. 338.

[29]  Greenspan, p. 335.

[30]  Greenspan, p. 394.

[31]  Greenspan, p. 430.