Alan Greenspan’s 2007 book “The Age of Turbulence: Adventures in a New World” (see the booklist on the sidebar to the right) is a marvelous work – part autobiography, part detailed academic analysis of why the American economy has worked so well over the years. For those not enamored of the details of macro economics, it can be heavy going in a few places, but overall it is quite readable, very instructive, and highly recommended.
Greenspan is a free market proponent, meaning that he believes that the world markets operate most efficiently when allowed to respond naturally to price signals. Free markets, of course, drive a continuous process of “creative destruction”, in which less efficient producers are driven out of business by more efficient producers, and newer, more capable products displace older, less capable products. That is good for the world economy as a whole, but hard on those who have just lost their jobs. Still, if you are a maker of buggy whips in a world that no longer has horse-drawn buggys, there is no help for it – you need to go learn a different trade. And if one factory produces cars at a cost of $20,000 apiece and a competitor can produce essentially the same car at $15,000 apiece, it’s pretty hard to argue that I ought to be forced by government policy to buy the $20,000 car just to help the workers in the first factory keep their jobs.
The opposing view, popularism, advocates government regulation and control to try to prevent people from losing their jobs. One sees this, for example, in the calls by some politicians (on both sides of the aisle) to have the government try to stem the outsourcing of American jobs to other countries with lower wages. It is a position that resonates with American voters, and wins votes for politicians, but as Greenspan shows from decades of data throughout the world, such government interference with the free market forces generally produces a far less healthy economy.
Similarly, he argues that the Federal Open Market Committee (what is commonly called the Federal Reserve Board) needs to continue to have freedom to adjust interest rates as needed to control inflation. But of course raising interest rates is never politically popular. Greenspan reasons that inflation has been kept unusually low for the past decade by the emergence of large new labor markets in places like India and China (where we are outsourcing jobs), but that as these markets saturate and their wage rates increase, inflation will appear again. He worries that when the Federal Reserve is finally forced to raise interest rates markedly to control inflation, popularist politicians will try to interfere.
Whether you are a free-market believer or a popularist, this is an important book to read, if only to test your beliefs against some real-world data.
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