Book Review: The Age of Turbulence: Adventures in a New World

One of the things various people have said over the years about Alan Greenspan is that he tends to underestimate his own influence. Reading his book, I think I'm seeing that too. For example, in the introduction, he relates how after 9/11 he made a speech that put a brave face on things, saying that the economy had become resiliant to shocks, but he didn't fully believe it and didn't expect he was fooling anyone. Then he turned out to be right: the economy recovered relatively quickly. It's obvious to me that at least part of the reason the economy recovered so quickly is because Greenspan suggested that it would. People believed (correctly, in my opinion) that he was the leading economics expert in the world, and so when he made positive statements, that gave people confidence, which generally has a lifting effect on the economy. Another example: barely a page later, he relates that after a meeting with lawmakers, he went home thinking all he'd done was reinforce what the lawmakers were already thinking, but the press acted like it was his agreement that made the whole thing happen. Well, it probably was. Apparently the lawmakers in question actually believe that the Chairman of the Fed is some kind of expert on economics, and if he agrees with what they're thinking, that gives them the confidence to go forward with it, and if he has reservations (as at the previous meeting) they hesitate (as they did). So now when out of retirement he comes out with a book saying that we are now living in a world with a "global capitalist economy that is more flexible, resilient, open, self-correcting, and fast-changing than it was even a quarter of a century earlier", people are going to believe that, too, and they're going to behave accordingly. I wouldn't have been very surprised if in the wake of the book's publication the economy surged up a bit: Greenspan just said a bunch of positive things about the economy, so let's all go out and do stuff with money. (It didn't work out that way because there were other forces at work, some of which I mention below...)

The historical narrative in the first half of the book is fascinating, not because I wasn't familiar with the basic events (I lived through and remember most of chapters 5-11), but because the perspective of an economist lights things up just differently enough to show up some things (trends, causes, and generalities) that I'd not been aware of before. Greenspan is a much better writer than I would have expected, and his story is compelling.

After going through the economic history of the last several decades, the author goes on to explore the economic issues that are currently facing various parts of the world, and the cultural and political issues that have important implications for economic policy and development. This is interesting material, as well, though of course much remains to be seen regarding how history will bear out his predictions.

Reading this book has raised in my mind some questions.

First, why is the short-term federal funds rate the only lever that the central bank in the US has to effect monetary policy? (I'm not saying, necessarily, that there should be other levers; I'm asking the question because I don't know the answer.) Greenspan indicates that the Fed was aware of the risk to the economy posed by the "irrational exuberance" of the dot-com bubble but was unable to do anything about it. Indeed, they briefly attempted to control the rising stock prices but found their measures ineffective and possibly counterproductive over the long term, so they left off trying. We can't fight market forces, they concluded. So then we had the dot-com bust and several years of pretty hard times for the IT industry, which had an impact on the entire economy. Not much later the Fed again saw a sudden inflation in another market they cannot effectively oversee, the real-estate market. There was nothing they could do about it, and when the bubble popped the housing market deteriorated quite significantly. The results include a credit crunch and the bankruptcy or collapse of a number of major lenders, especially in the subprime market (i.e., creditors that lend to normal people who don't have the 20% downpayment and other resources needed to get the best interest rates). A lot of first-time home buyers have been foreclosed, as I understand it not so much because of wrong that they've done as merely because the market now cannot support the loans they were offered during the real-estate boom. The home (which is the collateral) is not worth the outstanding loan amount, so if they can't make a payment they're stuck: there's no basis for an extension, and they can't sell their way out. This sort of thing is obviously not good for the overall long-term health of the economy, but what could be done about it? Are there additional levers that could (if Congress were so inclined) be granted to the Fed to assist them in more effectively smoothing out short-term economic forces and promoting the long-term health of the economy? And if so, what would be the other consequences of giving the central bank these additional powers?

Price controls obviously are NOT the answer. Just about all modern economists take it as an axiom that if the markets get too far out of touch with reality they will eventually correct themselves, and it is these market corrections that cause all the problems. The sorts of controls that characterize central planning (socialism and especially marxism) are only good for forcing markets further out of touch with reality, which invariably causes more problems than it solves, as Eastern Europe discovered.

However, the role of the central bank, primarily, is to control macroeconomic forces, most especially the value of money. (This is why we call it monetary policy, after all.) Controlling inflation (and deflation, if that becomes an issue) is very clearly within their mandate. But if the inflation occurs because of a situation in a market over which they have little or no influence, how can they control that inflation and keep the value of the currency stable? Besides the stock market and real estate, what other markets are there that the Fed cannot readily influence? What dangers does our economy face in the future? Just for instance (and purely *cough* hypothetically, ahem), what if labor becomes significantly overvalued? What kinds of havoc would the resulting market correction wreak?

Book Review: A Thousand Splendid Suns

First off, let me preface this review by saying that this is pretty far removed from the kind of book I normally read. It's basically Romantic (in the older sense of that term) fiction. However, the setting sort of reached out and grabbed me: the book is set in the historical twentieth-century third world. When I discovered that the public library had it on audio, I went ahead and checked it out.

As historical fiction, however, I found the book disappointing. The book jacket information raves that "personal lives are inextricable from the history playing out around them", but I find this to be less than altogether true, as the main characters are two very reclusive women. During the bulk of the story they almost never leave the house and so have almost no opportunity to directly observe anything going on outside its walls. The history is reported almost entirely through the men in the story, who are really side characters, and through intermittent narration largely irrelevant to the story. We hear about the Soviets through Laila's father, and about the Mujahideen and the Taliban through Rasheed, a man so distant (and poorly detailed) that he is himself almost a part of the setting rather than a character. There are two notable times that the history really has a direct impact. One is when a stray rocket serves as a plot device to keep Laila from leaving the city with her family. Historical fiction is not a genre that I've read extensively, but in what I have read of it, the history was much more integrated into the story than this. (The other instance, admittedly, is better writing, if a bit macabre: the hospital conditions for the delivery of Laila's second child.)

The two main characters are developed thoroughly and well. They are multi-faceted, dynamic, interesting, and reasonably realistic, and the reader can identify with them and feel sympathy for them. Most of the other characters, however, are relatively underdeveloped: flat, largely uninteresting, and in many cases static. The story suffers for this, particularly from the poor development of Rasheed. Here we have a major character, around whom the plot is wrapped like a glove, so that virtually everything that happens to the other major characters is a result of some action on his part, and yet he is so poorly developed, so distant, that I found myself completely unable to identify with him at all, unable to care at all what happened to him (for good or ill). The parents of the four women all also have important roles in the early part of the book, but of the four, only Jalil has more than one facet of his personality explored in any depth. Later, Aziza is a fairly important character, or could be, but we know almost nothing about her.

The plot writing is, in my estimation, better than the characters. Although it is predictable and even obvious at times, there are a number of unexpected turns. Most of these turns are created by actions taken by Rasheed, not by the "history playing out"; nonetheless the story has a satisfying complexity and completeness. This had to be difficult to achieve, with characters who spend nearly all of their time at home, but the author manages it surprisingly well.