Now that my bookshelves are officially full, the rule is that if I want to keep a new book, an old book has to go, so this morning I was scanning the shelf for a sacrificial victim. Bob Woodward’s 2000 book [amazon_link id=”0743204123″ target=”_blank” ]Maestro: Greenspan’s Fed and the American Boom [/amazon_link] jumped into my hand. The preface says:

“Not only is he [Greenspan] a major figure in the world’s economic past, he is central to its future. He has been frank enough to stand before the new and amazing economic circumstances that he helped create and in the end declare them a mystery. It is impossible to account fully for the continuing high growth, record employment, low inflation and high stock market.”

So indeed it proved. Impossible because unsustainable. My 2001 paperback edition has an afterword entitled ‘After the Boom’ in which Woodward voices Greenspan’s justification for the sharp slowdown in the economy from the end of 2000. Essentially, the former Fed chairman says the problem was that taxes were too high. The book says of Greenspan’s view:

“With higher productivity, the federal government was going to be collecting more in tax revenue than expected over the next decade. He calculated that at a point in about six years the federal government could have paid off its entire debt of several trillion dollars and accumulated some $500 billion in excess surplus.”

Hah! It goes to show, one, that a decade is a long time in central banking, and two, how institutionally powerful the momentum for tax cuts was in the US at that time. Those deficit and debt calculations must have been, even without the benefit of hindsight, clearly over-optimistic and therefore cynical.

So the book has not worn well. Woodward was so dazzled by his subject, who obviously co-operated closely in this hagiography, that he lost all perspective. His only note of caution is to conclude that Greenspan should have been just a bit more vocal about the dangers of a financial bubble. I think this one has lost its bookshelf slot.

[amazon_image id=”0743204123″ link=”true” target=”_blank” size=”medium” ]Maestro: How Alan Greenspan Conducts the Economy[/amazon_image]