This morning, through one of those chains of mental connections that would take too long to explain, I picked up Alan Greenspan’s 2007 book The Age of Turbulence. I was expecting to mock his triumphalism and complacency, not having read it since it was published. It was a surprise to find, along with a confidence about the lasting effects of new technologies on productivity growth, a real sense of the fragility of the globalized, financialised economy of which he had been an important architect:
“The impact that fixing our school system would have on our future level of economic activity may not be easy to measure, but unless we do so and begin to reverse a quarter century of increases in income inequality, the cultural ties that bond our society could become undone. Disaffection, breakdowns of authority, even large-scale violence could ensue.” (Extraordinary, this one – Alan Greenspan as a founder member of the Occupy movement!)
“The dysfunctional state of American Politics does not give me great confidence.”
“History has not dealt kindly with the aftermath of protracted periods of low-risk premiums….. Value is what people perceive it to be. Hence liquidity can come and go with the appearance of a new idea or fear.” … A financial crisis was “brewing”, he wrote.
“Markets have become too huge, complex and fast-moving to be subject to 20th century supervision and regulation…. For over 18 years my Board colleagues and I presided over much of this process at the Fed. Only belatedly did I … come to realize that the power to regulate administratively was fading.”
His conclusion remained, in mid-2007, that markets would therefore best be left to regulate themselves. The overall tone of the book is very firmly that of the Alan Greenspan we all have in mind – pro-market and anti-intervention, optimistic about globalisation and technology, far more concerned about inflation than deflation. But reading the introduction and conclusions again with the benefit of hindsight, those notes of caution are intriguing.