The Age of Turbulence

The Age of Turbulence: Adventures in a New World

Alan Greenspan

Narrated: Robertson Dean

544 pages, 20 hours

Start: Late 2008 :: In progress

Restart: August 31, 2021 :: Paused: September 17, 2021

(Picture: Amazon.com)

September 2, 2021

In 2005 during a MBA class, my professor asked “Who is the most powerful man in the world?” No one in my class was able to guess correctly. The answer left a deep impression on me. Alan Greenspan. When he spoke, the world listened. Stock markets around the world would rise or tank the next day because of his words. I started listening to him too, and his successors, Ben Bernanke, Janet Yellen, and to a lesser extent Jerome Powell.

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The first four chapters (“City Kid”, “The Making of an Economist”, “Economics Meets Politics”, “Private Citizen”) narrated Greenspan’s childhood in Manhattan, through his consulting days, serving as Gerald Ford’s economic advisor, and finally, Ronald Reagan nominating as the Fed chairman. I think this was where I stopped where I first read the book in 2008 … about at the 20% mark.

These chapters illustrated Greenspan’s logical mind where he made clever guesses based on older data points. To guess Pentagon’s air defense spending, he utilized declassified old data of military aircrafts, cost of metal, etc. To measure the country’s economic pulse, he created a simplified GNP model which he ran weekly. When he couldn’t find published data, he called trusted contacts for ball-park estimations.

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His methodology reminded something I learned when I was a chemical engineering undergraduate. Mathematically, if you have a problem with ten variables and you have only six reference points, this is an unsolvable problem. But a professor taught me that it simply meant I may have three or more solutions to the problem. So instead of an unique answer, I will end up with several possible scenarios. To sharpen my answers, I needed to make assumptions to fix some variables. Perhaps due to this early influence, I became comfortable to make guesses. I realized nobody has the perfect solution. Even the most convincing answer has elements of guesswork.

Re-reading this book, I came to realization that these first 99 pages influenced my work in that period. In 2008, I accepted a technical position which gave me a lot of time on my own. The office I was assigned was a dusty room with hundreds of files accumulated for over 20 years. I spent over a year scanning all those files into PDF format, and discarding the hard copies. As I fed the multi-functional copier to scan, I read every page in those files. I logically time-stamped the PDF files with a year or a date, and a subject title. In the end, I built an electronic archive, and had a good understanding of past events in the last 20 years.

Among the files I read were operating data that were published every two years. The dataset came from chemical plants around the world. I sat down one day compiling those data into a single Excel file and plotted comparative charts. I didn’t know then that I ended up conducting a benchmarking study, and the results startled the local plant management. I continued collecting more data over the years, even after I moved to new roles. By 2015 when I finally handed over my work to my successor, my Excel file had over 20 benchmarking metrics, and thousands of data points. I had keyed in every single data point manually, beginning from the fateful day in 2008, not long after I read Greenspan’s book.

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September 6, 2021

In Chapter 6 (“The Fall of The Wall”) Greenspan discussed how the former Warsaw Pact countries converted from centrally planned economies into market-based economies. It was also here he introduced the concept of “creative destruction” being the engine driving the markets. Without the demand signals from the consumers, centrally planned systems were doomed to fail. Supply and demand cannot balance each other. Production will exceed demand for some items, and too little for others. History told us that people will revolt when food was scarce, or heating was not enough during a cold winter.

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Many of my foreign affairs interests stemmed from my readings circa 1992. The Berlin Wall fell a few years earlier, and Yugoslavia broke apart that year. That was also the last year when a group of European countries were collectively known as European Economic Community (EEC). The younger me read an article which explained how EEC will become European Communities (EC) in the following year and a component of what we know today as European Union (EU). From this nucleus knowledge, I followed how Germany unified into a single country, how the Eastern European countries elected new governments, introduction of euro, and the expansion of EU.

In 2005, I visited the region for the first time. I entered EU through Budapest, Hungary. The country had just joined EU the year before, and her people were adjusting to the new systems. I saw many hammers and sickles around the city as well as graffiti on walls. My local Hungarian guide told me the people were hopeful of the new systems, but the adjustments were difficult. Poland which also joined EU in 2004, was in a much better state. Instead of hammer and sickle, I saw the EU flags everywhere in Krakow. By the time I reached Berlin, the Wall that dissected the city into two was just markings on the streets.

I revisited Budapest in 2016. The city had very much changed. No more hammers and sickles.

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In Chapter 7 (“A Democrat’s Agenda”), Greenspan described his relationship with Bill Clinton. Greenspan was a Republican who served Reagan and Bush. However to my surprise, he had many criticisms for Bush, but praised Clinton repeatedly. In his assessment of the presidents he had served, he rated Clinton as the most intelligent, and one that made painful reforms for long term viability of the US economy. This assessment intrigued me. In “That Used To Be Us” journalist Thomas L. Friedman, a Democrat, praised Bush and criticized Clinton.

Greenspan quoted something Clinton said which astounded him, “Whenever you shift to a new economic paradigm, there’s more equality. There was more when we moved from farm to factory. Vast fortunes were made by those who financed the Industrial Revolution and those who built the railroads.” Clinton made this statement recognizing the Internet revolution which pushed the world into a new era, was minting wealth and widen the income inequality. He made this conclusion well before globalization became a buzzword and many books were subsequently written on the subject. I understood then why Greenspan recognized Clinton as the smartest US president he served.

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I paused at the end of Chapter 7 to digest Clinton’s statement. During the agrarian era, wealth was in the hands of the land owners, not the farmers. Feudal systems that lasted thousands of years were built on this foundation. The industrial revolution shifted the wealth into the hands of industrialists and financiers. e.g. John Rockefeller, J.P. Morgan, and Cornelius Vanderbilt. This distribution of wealth also caused countless wars. When personal computers came along, Bill Gates became the richest man in the world. During his term when the internet era was still in infancy, Clinton foresaw wealth was going to shift again.

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September 8, 2021

In 1997, Alan Greenspan married Andrea Mitchell, a journalist. He shared that he proposed five times. However because he asked the question in “Fedspeak”, she missed it completely twice before agreeing. Fedspeak as I learned meant Greenspan would flood a reader or listener with many statistics and theories, and then unsuspiciously slide in an unrelated or contradicting statement. I found inconsistencies in Chapters 10 and 11 which left me with a bad taste.

In Chapter 10 (“Downturn”) Greenspan described a period during Clinton’s second term, USA was recording budget surplus year after year. He had initially proposed to use the surplus to pay off the country’s debt. However after several years of surplus which grew in size, he realized USA may pay off its debts sooner than he anticipated. He panicked at this plausible scenario which meant there was no need for Fed to issue debt and loses its function to regulate money flow. It meant Fed may be made redundant. Clinton had proposed a body to manage the surpluses by directly investing in open market. This is similar to sovereign wealth funds which were successful in managing their respective countries’ reserves. Without giving any explanation, Greenspan brushed off the suggestion as “dangerous”. Instead he chose to support tax cuts which effectively killed any future surpluses. In true Fedspeak fashion, he refused to admit responsibility for setting ablaze the tinder.

The second bizarre Fedspeak was in Chapter 11 (“The Nation Challenged”). In prior chapters Greenspan criticized presidents before Clinton for running deficits and lack of fiscal discipline. He praised Clinton for his conservatism which resulted in surplus in his second term. He praised the Congress during the same period for keeping a balanced budget, i.e. for every new spending, the House must either raise tax or reduce spending in another category. Then he criticized George W. Bush for his $1.35 trillion tax cut which pushed the nation into deficits again. In the same chapter he also discussed about subprime mortgage loans where many first time home owners borrowed more than they can afford. In his own Fedspeak words, Greenspan admitted that he was aware the loose mortgage credit terms increased credit risks and distorted the market, but he believed the risks was worth it to allow higher home ownership. On one hand he criticized politicians for spending more than tax receipts, yet on another hand he thought it was okay for common Americans to assume more debts than they can afford. I felt as the central banker, he was irresponsible to even allowed it to happened in the first place.

As we learned in history, he stepped down in 2006 just before the subprime bubble burst. Ben Bernanke, Henry Paulson, and Timothy Geithner had to clean up the mess in later years.

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September 10, 2021

In Chapter 12 (“The Universals of Economic Growth”), and much of Chapter 13 (“The Modes of Capitalism”), Greenspan shared his views on early economic teachings of Adam Smith, Karl Marx and the Fabian Society. Modern market based economy, centrally planned economy, and welfare policies have their origins one way or another in one of these early teachings.

In the second half of Chapter 13, Greenspan wrote how Fabianism which was deeply rooted in Great Britain politics and economy, was dismantled by Margaret Thatcher. The story of Thatcher fighting the powerful coal miner unions was also told in Daniel Yergin’s “The Quest”. Greenspan continued in the chapter on how West Germany rebuilt after World War II, and later subsidized East Germany’s economy in unifying the country. He closed the chapter discussing how Japan could have ended its stagflation sooner by allowing insolvent companies to bankrupt. Unfortunately the Japanese culture of “saving face” would not allow it.

Greenspan dedicated Chapter 14 (“The Choices That Await China”) to discuss the reforms started by Deng Xiaoping which lifted 800 million Chinese from poverty. He identified two problems that were impeding China’s growth, i.e. the “hukou” system which prevented migration, and the modernization of Chinese banks. On this topic, Greenspan’s observations were true through 2007, the year which this book was published, but obsolete as China continued in its reforms.

Chapter 15 (“The Tigers and The Elephant”) was a brief chapter which discussed the success of the Asian Tigers, I.e. South Korea, Taiwan, Singapore and Hong Kong, and Greenspan’s doubtful view of India. Greenspan assessed why he thought India will continue to lag behind China due to the deeply ingrained Fabianism.

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Since my early readings on European Economic Community and the Warsaw Pact countries, I had keen interest learning about the European Union. Historically, the region saw many wars including both the World Wars which originated from this continent. So it fascinated me how these countries were able to be united either under EU or under the North Atlantic Treaty Organization. The unification of Germany was an economic miracle. I have visited Germany many times since 2005 and honestly, unable to tell which cities were formerly the West or East.

In my travels from Cabo Da Roca to Istanbul, I observed this integration of Europe continent was uneven albeit after many years. They were three things I always looked out when I was in Europe, i.e. the cost of a cup of cappuccino, the cost of a Big Mac meal, and the presence of gypsies. A cup of coffee cost the same for much of Europe, be it in a service station along the highway, or in a small cafe. Since I drank coffee wherever I went, it was easy for me to make comparisons. I had also followed the applications of Turkey and Bosnia-Herzegovina to join EU, and the later rejection. I believe Turkey is dynamic enough to stand on its own, but Bosnia will need a long time to rebuild.

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I believe if Greenspan would write a second edition of his book, he would had to rewrite most parts of Chapter 14. One of his assessments was that successive Chinese presidents had less power that their immediate predecessor. Hu Jintao had less power than Jiang Zemin, and Jiang less than Deng. History however showed a dramatic political shift when Xi Jinping rose to presidency. Xi removed the two-term limit on his presidency. At time of this writing, he also cracked down on individuals who had amassed vast wealth and assets. I suspect Greenspan also did not expect China to advance so quickly on technological innovations that it threatened USA. Lastly, I was surprised Greenspan did not mention China would generate real GDP through its domestic market and service sector. This was discussed extensively in an international finance class I took in 2007, the same year the book was published.
Would have been interesting to hear Greenspan’s view of Donald Trump’s trade war with China.

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I first set foot in India in 2018. Mumbai a city of 12 million people amazed me. Some of the private enterprises I visited had large campus-like offices. Companies like Reliance and Adani were truly world class. But many parts of Mumbai appeared painfully trapped in time. There was a vast gap between the rich and the poor. I saw the same in Delhi, Chennai and Kolkata. In poorer states like Assam, the power went off three times when I had dinner in what was the best hotel in Dibrugarh. During my car ride from the hotel to the airport (about 10 km away) I saw people pulling carriages barefooted, bullock carts, tractors and trucks on the same road. There was no creative destruction. The choice mode of transportation dependent on the affordability. Hence, productivity was also dependent on affordability. The irony was that there was only one narrow road. The truck was only as fast as the cart pulled by a barefooted man.

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September 17, 2021

Greenspan discussed about the “Dutch disease” in Chapter 16 (“Russia’s Sharp Elbows”). This classic economic model had often been used to describe how the economy of countries like Venezuela crumbled albeit rich in natural resources. Many books described populist governments squandered the nation’s wealth on subsidies and entitlement which became unsustainable as population increased whereas oil production or price decreased. That had been my understanding of the “Dutch disease” phenomenon.

Greenspan explained it differently, and more closely in economics terms. As a country exported more oil, its local currency appreciates. This made the country’s other exports less competitive. Being a more profitable industry, the oil industry was allocated more capital and resources. Other industries will lag and fade. History showed several countries which were originally food exporters became net importers when their oil industry outsized the agricultural sector. Production from oil wells decreased over time. In order to maintain the production rate, it needed more capital to drill new wells. Dutch disease has several vicious cycles built in to ruin a country’s economy.

I was surprised that Greenspan used Russia as the example of Dutch disease at work instead of the populist governments of Latin America which he discussed in Chapter 17 (“Latin America and Populism”). Perhaps during the publication of the book (2006), Hugo Chavez was still in power, and Brazil as part of BRIC was a major emerging economy.

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I decided to pause my reading after Chapter 18 “Current Accounts and Regulation”). By then I had developed strong disagreement with Greenspan’s assessments and opinions on maintaining a current deficit. Throughout the chapter, Greenspan steered clear on discussing possibility of America maintaining a balanced budget, or managing sovereign reserves. He lost me when he discussed US households taking up more debts, and linked it to the national debt. In between his Fedspeak, he suggested that since the country was able to get foreign nations and institutions to finance their debt, it was ok for the US household debts to grow.

In his exact words, Alan Greenspan stated “…Rising leverage appears to be the result of massive improvements in technology and infrastructure, not significantly more risk-inclined human. Obviously, a surge of debt leverage above the the newer technologies can support invites crises. I am not sure where the tipping point is. Moreover, that late-1950s experience with consumer debt burdens has made me reluctant to underestimate the ability of more households and companies to manage their financial affairs”.

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• 2007
• 332.1 GRE
• Greenspan, Alan, 1926-
• Government economists–United States
• United States–Economic conditions–1945-