The Man Who Knew

Date:21May2017

I finally finished this 700+ page monster, The Man Who Knew, The Life and Times of Alan Greenspan by Sebastian Mallaby, which was totally worth my time. I think it is by far one of the best books I’ve read on global macro issues. I knew a bit about “The Life…” part from a quick read of this one, but much more interesting is the “Times …” part in this excellently-written monograph. I learnt immensely…

A good chunk of the book is naturally allocated to how we ended up with the global crisis — and monetary policy’s or Greenspan’s role in taking us there.  The book, it seemed to me, tried hard to avoid a definitive verdict on this burning question, but reading through it, it was hard for me or at least not to think that hubris, ideology and especially the zeitgeist, all played significant roles.  For a retrospective on Greenspan’s role as such, the part that asks, “Had he known what was to come, what might Greenspan have done differently?” in the penultimate Chapter, “I Found A Flaw” is perhaps most relevant on the regulation side.  Of course, the biggest problem was the monetary policy itself or the neglect of financial stability in the setting of monetary policy. This is justified mainly on two grounds — that inflation was very low all along (at some point in fact in potentially-deflationary territory) and that “bubbles” are difficult to spot in advance — neither of which looks convincing with the benefit of hindsight.

For those interested, there has been an interesting exchange between Bernanke and Mallaby (Mallaby’s response is here and Bernanke’s original blog is here. I marked many parts of the book that I thought were super-interesting, educational (for me) and even philosophical, like the confrontations between the two Alans (Blinder and Greenspan) or how the late Milton Friedman semi-endorsed Nixon’s price controls thinking they might have a favorable effect in altering expectations or how Mike Prell, the then head of research at the Fed, kept arguing that loose monetary policy was largely behind lower longer term rates (countering more structural explanations that have later become popularized as the “global savings glut”.)

Bottom line? Anyone interested in these issues should read this wonderful book…