‘The Buck Starts Here,” reads a sign on Alan Greenspan’s desk. As Chairman of the Federal Reserve since 1987, Greenspan is arguably the most powerful person in the country. But why? When was it that the Fed assumed such power over the economy?Who remembers a Fed chairman before Greenspan? Paul Volcker, of course; the gigantic 6-foot-7, 270-pound, cigar-smoking, unflappable head of the Fed during the Carter-Reagan era, who took both of his size-14 feet and vigorously ground inflation out of the U.S. economy as if he were in the habit of crunching cockroaches for a living.
The Republicans were weary of Volcker’s independence, yet fearful of appointing a Fed chairman who might be seen as soft on inflation. Hence the choice of Greenspan, reputedly a Wall Street wizard, who made his considerable fortune as an economic forecaster. A solid Republican, he served as the chairman of the Council of Economic Advisers under President Ford, and was trusted, even admired, by the big money Wall Street crowd.
What the Republicans and the nation got, argues Bob Woodward in his recently published book Maestro, was one of the smartest, most independent and, indisputably, the most influential chairman of the Fed in that institution’s relatively short, largely undistinguished history.
We have all seen the dour public face of Greenspan who, while testifying before Congress in prose far more obscure than James Joyce’s, mutters about “irrational exuberance” in the stock market, causing a mini Wall Street crash. The private Greenspan, as much as Woodward wants to pump him up, still seems equally unprepossessing.
Bereft of public charm, addicted to solving math and chess problems in his head, a stultifying-to-the-point-of-soporific public speaker, he commands respect because, says Woodward, smart as he is, Greenspan knows full well that the U.S. (and by extension, the global) economy is inherently unpredictable.
So, far from being a know-it-all, Greenspan is an economic agnostic. His central insight into the previously unheard-of, rapidly expanding, low-unemployment, low-inflation U.S. economy, is that none of the public and private statistics took into account the so-called information revolution which, invisible to conventional economic statisticians, revolutionized U.S. worker productivity.
For example, computerization in the manufacturing sector allowed unsurpassed inventory control. No need to order products that aren’t moving. Every reason to order those that are.
And so, Woodward claims, Greenspan, along with Clinton’s Secretary of the Treasury Robert Rubin and Deputy Undersecretary (now Secretary) Lawrence Summers, persuaded Clinton to press for deficit reduction, the net result of which has been the economic boom of the past eight years.
Maestro is Bob Woodward’s latest entry in a series of books on important American government institutions that began with the Supreme Court (The Brethren) and continued through the CIA (Veil), the Pentagon (The Commanders) and the Clinton White House (The Agenda). An undistinguished stylist, Woodward is nonetheless a first-rate journalist who invests his books with clarity and drama.
In Maestro he somehow manages to make the arcane discussions among Fed members seem exciting.
Ordinarily, Woodward approaches his subjects with considerable skepticism. Not so with Greenspan. He evidently could find no one, except President George Bush Sr., who had an unkind word to say about him. And Woodward demolishes Bush’s lame excuse that it was Greenspan’s failure to lower interest rates in 1991 that cost him the ’92 election. Future relations with the (new) President Bush remain to be seen since Greenspan has already criticized his massive tax cut proposal.
In the meantime, Greenspan reigns serene, overjoyed with the continuing opportunity to peer sanely and skeptically into the future of the U.S. economy in what he, in an enthusiastic burst of unaccustomed clarity, has called “the greatest job in the world.”