MAESTRO: Greenspan's Fed and the American Boom.

MAESTRO: Greenspan's Fed and the American Boom by Bob Woodward Simon & Schuster, $25.00

Gettin' Lucky With Greenspan

THE OPENING CHAPTER OF BOB Woodward's Maestro is riveting stuff. It is October of 1987, barely two months into Alan Greenspan's tenure at the Federal Reserve, and the chairman is in Dallas for a routine speaking engagement. Concerned about the market's Monday-morning doldrums, Greenspan checks in with a local Fed official shortly after arriving. The official offers a perfunctory response--"down five oh eight"--in which Greenspan finds a measure of relief. Then the official clarifies: the market is not down 5.08 points. It's down 508 points.

It turns out Woodward has parachuted us right into Black Monday, the biggest one-day slide in stock market history. But not to worry. With panic swirling around him--White House Chief of Staff Howard Baker whimpering like an incontinent lap dog, New York Fed President William Corrigan spewing invectives ("Alan, you're it ... Goddammit, it's up to you!")--Greenspan not only saves the day, he does so with Bond-like panache. This, of course, is the genius of Alan Greenspan.

But it's worth considering exactly what Greenspan does here. As far as I can tell from Woodward's account, it's only two things: one, issue a one-sentence public statement that seems to calm the markets; and two, mastermind a last-ditch plan that would guarantee payments between financial institutions (a lapse in those payments could have unraveled the entire financial system). The first strikes me as a no-brainer--what else do you do if you're the Fed chairman?--even though the insiders Woodward later quotes call it "brilliant." The second turned out to be irrelevant. As it happened, the market reversed course when a handful of Wall Street players bought $60 million in futures contracts the following afternoon. To this day, Greenspan still doesn't know who organized it.

And this, in a nutshell, is the problem with Maestro. Where Woodward's Greenspan cuts an Olympian figure, the real Greenspan was just a bright guy with better-than-average instincts. He has no special insight into the world that was changing around him and, in the end, he simply benefited from favorable forces beyond his control. Woodward is right that the story of the Greenspan era is the story of 1987 writ large. He's just wrong about what happened in 1987.

Needless to say, someone intent on taking a critical view of Greenspan wouldn't suffer for lack of material. The early 1994. Despite few indications of inflation as unemployment fell, signs we now recognize as the rumbling of a new economy, Greenspan's Fed clung to the same model that had informed central banking for years. The key to that model is what economists call the non-accelerating inflation rate of unemployment, the point beyond which further reductions in unemployment tend to trigger inflation, and beyond which central bankers tend to get interest-rate happy.

Of course, the funny thing about a new era is that you don't know it's new while you're in it. At least not right away. Given that ignorance, Greenspan did what any reasonable human being would do: He played by the rules he thought were in place.

Still, as time went on, unemployment continued to fall and inflation remained at bay. As Woodward tells it, this moved some to argue that the traditional model no longer applied, and that a continued drop in unemployment didn't necessarily spell trouble. Yet Greenspan was unconvinced. (In fact, he squeezed One proponent of this view out of the vice chairmanship of the Fed.) The Fed doubled interest rates between 1994 and 1996.

To be sure, that policy ultimately bought the Fed the credibility to lay off interest-rate hikes when it finally realized they weren't necessary. But it's tough to imagine Greenspan anticipating this benefit at the time. Yet Woodward not only praises Greenspan for the approach, he further credits it with what's known as a soft landing, essentially prolonging an expansion by slowing it down. It may have. But, if so, there's no question Greenspan benefited from a bit of dumb luck along the way. Had this been an ordinary expansion rather than the product of a revolution in information technology, the only thing Greenspan's interest rate hikes would have softened was Clinton's approval ratings. (George Bush is still convinced Greenspan cost him re-election by raising interest rates in 1991.)

Not that Woodward's account entirely misses the point. Perhaps no less important than Greenspan's Fed stewardship was his role as an economic adviser. And Woodward does readers a service by pointing out that it was Greenspan, along with Lloyd Bentsen and Robert Rubin, who gave Clinton the best piece of advice he received as president: Eliminate the deficit and Wall Street will reward you with lower long-term interest rates and subsequent economic growth.

That said, Woodward is ultimately the wrong man to write a definitive history of the Greenspan era. His treatment of economic issues, while nominally correct, betrays the sort of shallow understanding you'd get from a Texas governor in a presidential debate. Economic concepts get thrown around like names of obscure foreign leaders--often incorrectly, though these are, of course, forgivable offenses. Less forgivable are the deeper questions that go unresolved at best, and unraised at worst. (Is the Fed's only legitimate objective stable prices, or should it actively promote economic growth as well? Should the Fed have a long-term game plan or should it proceed blindly from one Federal Open Market Committee meeting to the next, as it seemed to under Greenspan?) And then there's the biggest question of all: Is it Greenspan we should thank for our historical economic success? On this question, Woodward altogether whiffs.

NOAM SCHEIBER is a reporter at The New Republic.