Greenspan judged and sentenced

A personal diatribe against an icon of US financial policymaking appals and enthrals in equal measure, says Rudi Bogni

I read Greenspan's Fraud in just one day. It is not a thriller, although a crime of intellectual fraud is alleged by the author, Ravi Batra, professor of economics at the Southern Methodist University in Dallas, Texas. If the book were meant to be a thriller, it would have shot itself in the foot by revealing the identity of the perpetrator in the first chapter (and title, for that matter). What makes it gripping - despite much repetition and Batra's monomaniacal one-sidedness - is the attack on Alan Greenspan, chairman of the board of governors of the United States Federal Reserve System since 1987.

The effect is mesmerising. Never before have I come across an academic economist discussing another economist's views and actions with the language and passion that American television evangelists normally reserve for Satan.

Obviously I have been spoiled by the elegance of argument of a J. K.

Galbraith or a Sir Samuel Brittan, and by the humour of my sadly missed friend Rudi Dornbusch. Their elegance and wit never prevented them from providing strong criticism of policymakers or influence-peddlers, but the attacks were always delivered with style.

The cynic in me thinks that Batra has given up hope of winning a Nobel prize, despite his self-advertised qualifications as an economist and forecaster (these include being recognised officially by an Italian prime minister for having forecast in his crystal ball the demise of Communism).

So why not cash in with a abusive book that will, no doubt, sell not so much on the strength of its ideas as on the personality and fame of the target of the abuse?

I am not appointing myself Greenspan's advocate. Nobody has asked me and I am probably not qualified. I met the man only once, at a private meeting and dinner at which my colleagues and I represented our client, an international bank, and Greenspan consulted us on the state of the US banking system.

This was about 20 years ago, while he was between government jobs, before becoming chairman of the Fed. I still remember his lucid analysis, albeit delivered in a dour, uncharismatic way, his command of facts and figures and his outstanding grasp of the issues.

Here is Batra's view of Greenspan when he is being polite: "By now it is clear that Alan Greenspan is an unconventional and wavering economist. Few know what he really stands for. His early life reveals that he used to have a bevy of core convictions, but that was before he became the chairman of the CEA [Council of Economic Advisers to the US Treasury] in 1974, and acquired a taste for the forbidden fruit of government authority."

And here is Batra as accuser, judge and jury: "Intellectual fraud occurs when someone uses his/her superior intellect to contradict his/her ideas, theories and opinions to further his/her self-interest... Greenspan contradicts himself repeatedly in his political career over three decades.

Thus Greenspan has committed intellectual fraud on a grand scale."

Batra's chief accusation against Greenspan is that he was, and is, enamoured of classical economic theory and balanced budgets, but that he has been willing to compromise his beliefs by backing US Presidents Ronald Reagan, George Bush and now George W. Bush - who have triggered huge budget deficits through tax reductions - to secure his successive reappointment since 1987.

Second, Batra accuses Greenspan of supporting regressive taxation with dire consequences for the quality of life of both the middle classes and the poor; and of operating a lax credit policy to protect his Wall Street cronies from the damage that huge budget deficits could cause.

Third, Greenspan is said to be against antitrust enforcement and a powerful accomplice in merger mania and the creation of oligopolies, or rather monopolies (as Batra calls them).

Finally, Batra says that Greenspan, having correctly analysed the bubble leading up to the dot-com boom and bust of 2000, chose to do nothing about it for reasons of political vested interest.

Batra's attacks do not stop with economic policy. As a teenager, Greenspan "wanted to go out with several girls, but few were interested in him", but after 1983, "beautiful women dated him even though he was nearing 60". Is this really relevant in a book on monetary and fiscal policy, or is the author preparing us for a second book, maybe a bestseller, on the influence of sexual appetites on economic policy? Batra stops short of accusing Greenspan of benefiting corruptly from his official position. Indeed, during the dot-com boom, "Greenspan did not personally profit from this euphoria, because his assets were mostly in bonds".

Batra even manages to be generous about the "maestro", as he call him, when he was a young boy: "he was idealistic and capable of displaying moral courage". But then he delivers his verdict: "Throughout history, the majority of intellectuals have championed those ideas that justify the needs of the dominant group in society. Therefore, when money rules politics, popular theories reflect the concerns of the affluent... throughout history, intellectuals as a class have been the last to adopt new ideas.

Non-intellectuals, inspired by a rebellious intellectual, are always in the vanguard of progressive philosophies." Now who would be a good example of such an enlightened rebellious intellectual, one immediately starts to wonder. A famous economist from a university in Texas perhaps?

The book covers Greenspan's years as chairman step by step. The prose is easy, even a little patronising (it finds it necessary to remind us that Marx was "the celebrated founder of communism"). The explanations of economic theories are oversimplified, but that is not much of a sin - an author is free to choose his level. The charts are clear, pertinent and thought-provoking.

Moreover, Batra deserves ten out of ten for hard work. Either he employed an army of motivated researchers or he is one of the most dedicated people I have ever known. A lot of effort has gone into the book, but this is vitiated by its being so one-sided.

Has Batra convinced me that the responsibility for all the economic troubles of the past 20 years, including the default on debt by emerging countries, should be laid at the door of Greenspan? Hardly. I have no doubt the man has made some important mistakes. Even Einstein made some significant errors; and geniuses who have daily commerce with politicians are bound to be pushed and pulled in conflicting directions. But Greenspan was just one among several senior officials, and he had a single, clearly defined area of responsibility. It was others who deified him, others who chose to make him the deus ex machina of every play on every economic stage.

What this book does convince me of is that Batra is a man with a grievance, or rather grievances. The most reasonable of them is that he has been deeply offended by what he witnessed in the 1980s and 1990s: the unmerited enrichment of CEOs and their cronies, and the impoverishment of "non-supervisory workers" in US society. He sees Greenspan as having connived in this and having betrayed the memory of his father, H. H.

Greenspan, who wrote a book in 1934 endorsing Roosevelt's New Deal.

Is there more to the book than an indictment of Greenspan? There is, but not a great deal. It offers an original economic theory that one might call "wage-gap theory" for short. According to this thinking, the gap between productivity increases and wage adjustments is responsible for all economic evils, starting from the inappropriate and exaggerated use of debt.

In addition, Batra proposes mass capitalism as the 21st-century policy remedy for the unmerited enrichment of the few. By this he does not mean participation of the type found in German industry, but the idea that more than 51 per cent of the shares in a corporation should be in the hands of its workers. Come back, Mrs Thatcher. All is forgiven!

I am sure that Batra is an outstanding economist. I would have enjoyed, I think, reading one of his academic papers, where "proof" indeed means proof by scientific methods. And I am not opposed to the popularisation of difficult ideas by using simple language. But I do not believe that even so dismal a science as economics is made more understandable by resorting to vitriolic personal attacks.

Rudi Bogni is a former banker and is currently a director or trustee of several institutions.