The Hindu Business Line : You have no idea how much damage economists can do!

"First came battalions of elite troops, impressive soldiers, all six foot two, marching in absolute lockstep. Right behind them are phalanxes of state-of-the-art artillery and tanks. Then come the nuclear missiles. But after the missiles come a straggle of six or seven civilians, unkempt, shabbily dressed, utterly out of place."

Thus narrates Alan Greenspan in his memoirs, The Age of Turbulence (www.penguin. com), recounting one of the many stories Ronald Reagan told him on an airplane.

"An aide rushes up to Brezhnev and begs forgiveness. `Comrade Secretary, my apologies, I do not know who these people are or how they've come into our parade.' `Do not be concerned, Comrade,' replies Brezhnev. `I am responsible for them. They are our economists, and you have no idea how much damage they can do.'"

Stored in Reagan's head must have been four hundred stories and one-liners, admires Greenspan. "While most of them were humorous, he was able to tap them instantly to communicate politics or policy. It was an odd form of intelligence, and he used it to transform the country's self-image.

Under Reagan, Americans went from believing they were a former great power to regaining their self-confidence." Another anecdote is about the `briefcase indicator', a CNBC gimmick, in which the TV cameras would follow Greenspan on the mornings of the Federal Open Market Committee meetings, as he arrived at the Federal Reserve. "If the briefcase was thin, the theory went, then my mind was untroubled and the economy was well. But if it was stuffed full, it meant I'd been burning the midnight oil and a rate hike loomed."

Alas, the indicator was not accurate, says Greenspan, because the fatness of the briefcase was solely a function of whether he had packed his lunch. Also, such an indicator was not a good way to convey monetary policy, he argues. "Often, the ideas we needed to present were subtle and had to be thought through, making them poor fodder for sound bites as well."

A common myth is that the central banker can peer into the future like the oracle at Delphi. "To what extent can we anticipate what lies ahead?" asks Greenspan rhetorically. And, goes on to answer. "Inbred within all of us is the capacity to weigh probabilities, a gift that helps to guide our actions in everything from the mundane to matters of life and death."

These judgments are not always right, but they have manifestly been good enough to enable humans to survive and multiply, he observes. So, what is the difference between the common man and the economist?

"Modern economic policymakers formalise such decision making in mathematical terms, but humans were judging probabilities long before we invented the match to explain them."

Greenspan doubts, however, if investors will ever be able to gauge when markets veer from the rational and turn irrational, again, because of inbred human propensities - `to swing from euphoria to fear and back again'.

Successful investing is difficult, he declares. "The market pays a premium to those willing to endure the angst of watching their networth fluctuate beyond what Wall Streeters call the `sleeping point'."

A book that can engage you beyond that point.

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