- The Washington Times - Tuesday, January 30, 2001

I was originally asked to review two new books about Federal Reserve Board Chairman Alan Greenspan several months ago. The press of election-related news prevented my getting to them as soon as I had hoped. But I am grateful for the delay, because the deterioration of economic conditions in the meantime has given me a different perspective than perhaps I might have had originally. The two books are "Maestro: Greenspan's Fed and American Boom" by Bob Woodward of The Washington Post and "Greenspan: The Man Behind the Money," by financial writer Justin Martin. When these two men decided to write their books, two or more years ago, the subject must have seemed like a no-brainer. Mr. Greenspan was widely hailed as a genius by almost everyone. The economy was growing like gangbusters, the stock market was soaring through the stratosphere, and it was easy to lay all these good things directly at his feet.

Today, the situation looks quite different. The formerly high-flying Nasdaq has fallen by more than half from its March peak, and many economic forecasters are saying that the economy has entered a recession. Almost everyone blames the Fed for at least triggering the downturn, even if they don't blame it for causing a completely unnecessary and avoidable destruction of several trillion dollars in wealth.

Reading the Woodward and Martin books with the benefit of this experience gives one a perspective that most of these books' earlier reviewers missed. In most cases, they simply used the opportunity to praise Mr. Greenspan once again for his all-knowing stewardship of the economy. A year ago, had someone suggested abolishing our republican form of government and installing Mr. Greenspan as king, I am sure that a significant percentage of Americans would have supported it.

The vote would be quite different now. Millions of Americans are poorer because of decisions Mr. Greenspan made, and in coming months many will find themselves in unemployment lines as well. Mr. Woodward's book, in particular, shows that this is part of a pattern and not an isolated example of Mr. Greenspan's modus operandi.

Mr. Woodward's book is thin on biographical detail, while Mr. Martin's is heavy. Individually, they present a one-dimensional view of Mr. Greenspan. Together, they give us about two-thirds of what we need to know. What is lacking, to complete the picture, is a solid academic review of the Greenspan Fed by an economist qualified to judge the actual performance of it as an institution, divorced from Mr. Greenspan.

Mr. Woodward begins with Mr. Greenspan's appointment to the Fed chairmanship in 1987 by President Ronald Reagan. In his patented style, he gives us many direct quotations from participants in intimate meetings where only two or three people were present, and all apparently are gifted with total recall. Everything is framed in a highly political and personal context. Ideas and principles essentially count for nothing.

Thus, in Mr. Woodward's telling of the Greenspan story, it is all a personal triumph of a single great man, who did what had to be done regardless of the consequences. Virtually everyone else in Mr. Woodward's story line is a pygmy, concerned only with selfish considerations divorced from the greater good.

The truth is much more complex. It is clear from a simple reading of the economic history that Mr. Greenspan has made huge mistakes on more than one occasion. Although he does not say so, it is apparent from Mr. Woodward's history that Mr. Greenspan brought on the stock market crashes of 1987 and 1989 by ill-timed monetary tightenings. And he clearly had no clue about what was going on in 1990 and 1991, when a monetary-induced recession and anemic recovery caused the defeat of President George H.W. Bush in 1992.

Mr. Woodward's focus on detail causes him to miss the big picture. Larger forces are absent and people do what they do simply because they are inherently good or bad. Mr. Martin's book tries to fill the gap by attempting to tell us where Mr. Greenspan's ideas came from. He focuses heavily on cult figure Ayn Rand, the libertarian novelist with whom Mr. Greenspan was closely associated in the 1950s and 1960s. However, Mr. Martin makes it plain, as does Mr. Woodward, that there is really no meaningful connection between Rand's often eccentric philosophical views and Mr. Greenspan's operational actions at the Federal Reserve. It is interesting, but not relevant for analytical purposes.

In the end, neither book helps very much in explaining why Mr. Greenspan did what he did in the past or what he might do in the future. I was left feeling that these books might be useful additions to some monetary economist's library, but they really tell investors and policy-makers nothing particularly valuable. They are worth reading solely for enjoyment, not enlightenment.

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