Binyamin Applebaum: ‘The Map and the Territory’ by Alan Greenspan:
Alan Greenspan… writes… that he has been thinking about bubbles since the financial crisis of 2008…. What economists like to call “the animal spirits” can be incorporated into economic models…. This is promising stuff. It might even make an interesting book. But the subject barely holds Mr. Greenspan’s attention for a single chapter.
The rest of this book is instead devoted to a discursive tour of recent economic history, punctuated by conservative policy prescriptions…. This tour has its attractions…. Accounts of the financial crisis, in particular, have assumed the character of Mr. Potato Head kits…. Mr. Greenspan’s Potato Head is made up of predictable parts: He blames the government… absolves the Federal Reserve…. He has not tried to enliven this account with any history of his involvement as Fed chairman from 1987 until 2006….
The most provocative part of the book is Mr. Greenspan’s assertion that government spending on Social Security, Medicare and other entitlement programs is the reason that the American economy has grown more slowly in recent decades…. Yet it is not obvious that the American economy has been suffering from a lack of financing. While Americans saved less, the rest of the world was only too happy to shovel money into the United States. Mr. Greenspan in this same book subscribes to the view that the housing crash was caused in part by an overabundance of foreign investment in the American economy.
Furthermore, taxation cannot be the reason Americans are saving less… most Americans in 2010 paid a smaller share of income in taxes than households with the same inflation-adjusted incomes paid in 1980… the wealthy are paying more in taxes--but that is only true because they are making more money…. Productivity and growth have sagged most dramatically since President George W. Bush cut taxes in 2001. Maybe another round of tax cuts would turn things around. Or maybe we really are just running out of new ideas.