On 17 June 1999, as the tech bubble was under way, Greenspan told the US Congress: “Bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgement that hundreds of thousands of informed investors have it all wrong. Betting against markets is usually precarious at best.” According to Greenspan, the market is always right even when investors periodically behave like raving lunatics.

But surely, he had some academic fig leaf to rationalise the daily maniacal behaviour of the market during the two bubbles? For years, Greenspan was able to explain the tech bubble by the magic term of productivity. And where did Greenspan get the productivity argument from? From companies via investment analysts. He believed that “securities analysts presumably are knowledgeable about the companies they follow. This veritable army of technicians has been projecting increasingly higher five-year earnings growth, on average, since early 1995… There appears little reason to doubt that analysts’ continuous upward revisions reflect what companies are reporting to them about improved cost control, which on a consolidated basis for the economy overall, adds up to accelerating labor productivity… Thus, companies are apparently conveying to analysts that, to date, they see no diminution in expectations of productivity acceleration.” As Fleckenstein puts it, “companies felt good, analysts felt good – all was well because productivity was powering a new era.”

Enough has been written about the poor stock-picking skills of investment analysts and how badly compromised they are on Wall Street. The stories about Henry Blodget and Jack Grubman and the role they played in the pump-and-dump operations on Internet stocks are well known. Against this background, it is rather sad to see the governor of the country’s central bank rationalising the stock market’s relentless upward march in the mid-1990s by quoting investment analysts and companies hell-bent on spreading the feel-good factor. Interestingly, his predecessor at the Fed, the universally respected Paul Volcker, didn’t quite see it that way. On 14 May 1999, he made the following point in a commencement address to the Kogod School of Business of the American University: “The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings.” Volcker clearly saw a bubble; Greenspan didn’t.

Bill Fleckenstein has been a critic of Alan Greenspan for a long time. He has written scores of articles that show how Greenspan had got it wrong most of the time. This thin book is strongly-worded but exposes Greenspan’s dubious contribution as one of the most powerful policy-makers of the world. – D.B.

Roadmap
If you are a frequent flier across continents, The Business Traveller’s Guide to the World (Penguin India) will come handy. It is a mini-encyclopaedia that includes everything from the birth rate to mortality rate, to what kind of diseases to worry about in which country, to the type of communication facilities available. Information on each country is segmented under history, geography, population, religions, main languages, literacy, system of government, legal system, currency, GDP growth, unemployment, transport network, travel advisory and others accompanied by a small map. The book begins by enlisting basic travel tips on issues such as passport, visa, health insurance, clothing, essential articles to carry and how to guard against infectious diseases. In the end, it lists all the time zones, ISD and Internet codes, capitals and currency of each country. This 500-odd page book is extremely light and would be useful for all business travellers who plan on impressing foreign clients by their ‘thorough’ knowledge of the host country.