A Walk In The Woods

Imagine you are walking through dense woodland on a foggy evening. You are following a friend along a twisting path and as the mist rolls in you begin to lose sight of your companion. You have to navigate by the sound of their voice alone. As the path becomes less distinct, you feel you are losing touch as you only catch the occasional glimpse of your guide. Just as you are in real danger of getting lost, the fog lifts and you emerge into a clearing to be reunited.

That is how I felt yesterday listening to Alan Greenspan. I had been invited to speak at the Conference de Montreal and the guest of honour was the former Chairman of the Federal Reserve. Sitting on his table at dinner, it was clear that he is used to being venerated and once you get beyond the fact that he looks like an octogenarian Woody Allen, he is undoubtedly well informed on all manner of subjects.

But listening to his diagnosis of what is wrong with the global economy, I felt like the man in the woods. To start with, I followed the logic of his argument. Then, as he explained the fallacy of conventional thinking on the US real estate market and its connection to bond yields, I temporarily lost the thread. I picked it up again when he explained that the central naive presumption behind the creation of the Eurozone was that Italians and Greeks would start to behave like Germans. I lost him again on the inherent error in Chinese GDP calculations and then caught up again when he concluded that the US had a slim hope of economic salvation. But that Europe did not.

It was a virtuoso performance from a man who started his career in economic forecasting in 1949. And as we left dinner I joined my fellow diners in wondering at Greenspan’s sagacity and clarity of vision. No wonder, we concurred, he was retained in the world’s top economic job by four presidents regardless of their political orientation.

The backdrop to the Greenspan talk had been an afternoon discussing the interconnected nature of the global political economy. There was violent agreement on how the simultaneous challenges of fixing the Eurozone, stimulating sustainable growth in the US, kick starting the Indian reform programme and safely applying the brakes in China is as tough a series of tasks as any generation of political leaders has ever faced. And that is before we have got round to figuring out a sensible way to deal with environmental degradation, population growth, urbanisation, natural resource scarcity and the rest of the mind numbingly complex nuts we have to crack.

But on reflection it occurred to me: what happens if Greenspan was wrong? What happens if he has always been wrong? How do we know? And it struck me how vulnerable we are to the reputation of great experts like Alan Greenspan. Because most of us struggle to grasp the fiendish complexity of modern economics, we are too readily in awe of those that do or appear to do so. A bit like how we used to treat doctors before we all started diagnosing our ailments on the internet.

I actually have no idea whether Greenspan is a brilliant economist or merely a great institutional brand. And what is more worrying is that I am not convinced that people a lot less stupid than me have any clue either. And the nature of a globalised economy means that there are always so many other variables to blame if things do not work out how you predict. Fault-free forecasting is a great business to be in: you fly around the world; you are treated with deference and feted as if you alone have cracked the genetic code of economic life.

Before I get carried away on my hypocritical high horse, I should point out that I am writing this on my way to a Canadian television studio to be interviewed on Russian policy towards Syria. I too will offer my diagnosis of the problem in the certain knowledge that nobody will ask me to deliver a solution.

Pontificating with impunity: it must be contagious!

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  1. Matt Klaff says:

    Enjoyable reading Richard. Very insightful. I am officially a fan.


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