- The Washington Times - Tuesday, October 2, 2007


Here’s a surprising statistic that, not surprisingly, does not make an appearance in the numbers-laden “The Age of Turbulence: Adventures in a New World,” the memoir of Alan Greenspan, who served for more than 18 years as chairman of the Federal Reserve Board. During the 73 full calendar quarters (from the fourth quarter of 1987 through the fourth quarter of 2005) spanning Mr. Greenspan’s tenure at the Fed, the average annual compounded growth rate of the U.S. economy (2.99 percent) was actually less than its average growth rate during the preceding 73 quarters (3.04 percent).

This universally unacknowledged fact seems counterintuitive, given that the earlier period contained four recessions, including the two steepest post-World War II downturns (1973-75 and 1981-82), while Mr. Greenspan’s reign was limited to two of the briefest, mildest postwar economic contractions (1990-91 and 2001). But a fact it is.

The memoir has unleashed feverish attacks. In the op-ed columns alone, Mr. Greenspan has been slammed by Paul Krugman, the income redistributionist on the left, and Robert Novak, the supply-side Kool-Aid drinker on the right. That puts the former disciple of libertarian Ayn Rand in the middle, a position he proudly occupied as one of the last Republican deficit hawks in Washington.

Mr. Greenspan was a fierce combatant throughout the partisan fiscal warfare that engulfed his tenure at the Fed. He reminds us that he and his longtime friend, then-Treasury Secretary Paul O’Neill, had endorsed “triggers.” He futilely asked Congress in his 2001 testimony to consider “provisions that limit surplus-reducing actions if specified targets for the budget surplus and federal debt were not satisfied.”

When the 2003 tax cuts were on the table, he pleaded with senators to reinstate the pay-as-you-go rules that would have required Congress to fund the tax cuts by cutting entitlement spending or raising revenue elsewhere. After President Bush ignored his advice to veto spending bills and congressional Republicans continued to feast on pork-barrel projects, the monetary maestro concluded that “they deserved to lose” the 2006 elections.

Also, at the end of a chapter titled “The Long-Term Energy Squeeze,” Mr. Greenspan offers a much more controversial conclusion. “I am saddened that it is politically inconvenient to acknowledge what everybody knows,” he audaciously declares, but “the Iraq war is largely about oil.”

Mr. Greenspan addresses the criticism he has received for the stock-market bubble, which burst in 2000, and the housing bubble, which is deflating today. He laments that Fed tightening in 1994-95 and 1997 failed to constrain the stock market. On the housing front, when the Fed steadily raised its short-term target interest rate from 1 percent in June 2004 to 5.25 percent in June 2006, long-term Treasury rates, which directly affect mortgage interest rates, barely budged.

In a book filled with economic insights, Mr. Greenspan provides the most rigorous analysis to justify his disturbingly sanguine acceptance of the soaring trade-related current-account deficit, which has exceeded 6 percent of gross domestic product the past two years. The ominous implications of the shorter, less rigorous (and almost certainly more accurate) explanation — America is consuming far more than it is producing and is financing this consumption binge by borrowing abroad — give cause for much greater concern.

Throughout the book, he acknowledges (and laments) a “disturbing shift in the concentration of income” since 2001 and “a persistent rise in income inequality” since 1980. He is right to argue that resulting stagnation from “hutting our doors to trade would bring the American standard of living down” by as much as 10 percent.

However, given that next year will mark the 25th anniversary of the “Nation at Risk” report detailing the massive problems of American elementary and secondary education, which have been followed (but not solved in any meaningful way) by 25 years of “reform,” his solution to rising income inequality — more education reform — is, regrettably, surely inadequate.

Next year is also the 25th anniversary of the Greenspan Commission, which slowed Social Security’s relentless march toward bankruptcy. It’s also the first year of eligibility for baby boomers, whose cohort Mr. Greenspan inexplicably underestimated at 30 million people. It’s closer to 75 million, two-and-a-half times his estimate. Meanwhile, as he has warned us for years, the Medicare-related problems will dwarf Social Security’s. That undoubtedly explains why he called the 2003 Medicare prescription-drug bill “most dispiriting.”

David Dickson is an editorial writer at The Washington Times.

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