analysis matched their classified numbers. More important to me, however,
was that my audience snapped up the information. I got requests from
member companies to provide additional details of my calculations.
Around this time I started getting freelance research assignments from
a fellow Conference Board analyst named Sanford Parker. Sandy as everyone
called him; was a short, disheveled whirlwind, about ten years older than
I, who had made a name for himself writing weekly commentary in BusinessWeek
starting in 1939. Now that he worked for the Conference Board, he
would moonlight by writing economics articles for Fortune. When he offered
to farm out some of the analytical work to me, I jumped at the chance.
Commissioning Sandy was Fortunes way of capitalizing on what the
editors believed was a nascent trend. Although the business world was not
very intellectual, it seemed as though industrialists and financial people
were starting to take an interest in what economics could tell them. (John
Kenneth Galbraith was on the staff in the late 1940s, but I doubt he helped
shape this awareness.) Sandy was a real authority, and he had skills I didn't
have. For one thing, he knew how to write clearly in short, declarative sentences.
He tried to teach me to do the same and almost succeeded; it was a
skill I had to unlearn as chairman of the Fed. Fortune s editors liked him because
he could write with conviction about the economy as a whole, and
because he was creative—he'd often come up with surprising approaches
for spotting and analyzing trends.
As I worked with Sandy, I began to see that his authoritativeness derived
largely from the fact that he simply knew more about the economy
than anyone else. My knowledge was not as extensive as his, yet the gap
wasn't wide. I was learning every day by doing work I loved—if I kept at it,
I thought, I could catch up.
In late 1950, Sandy left the Conference Board to become Fortunes first
chief economist. I'd hoped to land a job in the department he was building,
but instead Fortune offered a freelance assignment to work with Sandy and
other writers in preparing a major series of articles called "The Changing
American Market." (It ultimately appeared in twelve parts over a span of
two years.) Having this new source of income made me feel that I could afford
to take some risks.
43
THE AGE OF TURBULENCE
I'd been getting calls from an investment adviser named William Wallace
Townsend, who was the senior partner of a Wall Street firm called
Townsend Skinner, one of the smallest members of the Conference Board.
He'd been reading my work and we'd discussed it a bit on the phone. In
early 1953, he called and said, "Why don't you come down and join me at
the Bankers' Club for lunch?" I agreed.
I took the subway downtown. The Bankers' Club occupied three floors
at the top of a financial-district landmark called the Equitable Building,
with the reception area on the club's first floor and a library and dining
room above. There were beautiful views out the window, and heavy rugs
and furnishings and draperies. From our phone conversations, I'd figured
Townsend to be about forty; he'd thought the same about me. But when I
stepped out of the elevator and asked someone to point him out, Bill turned
out to be more like sixty-five. I went over and introduced myself, and we
both burst out laughing. We hit it off instantly.
Bill had been born in 1888 in upstate New York, and had had a series
of impressive ups and downs. He'd made a couple of million dollars on Wall
Street in the 1920s as an expert in corporate bonds; he'd written the Independent
Bankers' Association book on bond salesmanship. Then he'd lost
everything in the 1929 stock-market crash. In the thirties he'd bootstrapped
his way back up by founding a small firm that put together statistical indexes
for stock- and bond-market forecasting.
When we met, Townsend was also writing something called the Savings
and Loan Letter, a technical report that thrift institutions subscribed
to. His partner had been Richard Dana Skinner, a scion of a New England
family and a great-great-grandson of Richard Henry Dana Jr., author of Two
Years Before the Mast. The firm had many famous clients, such as Donald
Douglas, the aviation pioneer who founded Douglas Aircraft, and former
president Herbert Hoover, who now lived at the Waldorf Towers and whom
Bill periodically visited. However, Skinner had died some years before, and
nowTownsend's son-in-law, who also worked at the firm, had been offered
a job as fiscal agent of the Federal Home Loan Bank system. That, explained
Townsend, was what had brought us to this lunch. "I'd like you to join me,"
he said.
Changing jobs was a remarkably easy decision. Besides the Fortune
44
THE MAKING OF AN ECONOMIST
work, I had a steady stream of freelance research projects, and new clients
were always calling. I had no real obligations—Joan and I had already decided
to separate, and within a few months I would be moving back to
Manhattan and would rent an apartment on Thirty-fifth Street.
Townsend-Greenspan opened for business in September 1953. (We
were officially incorporated in 1954.) Our offices were on Broadway, a little
south of the New York Stock Exchange. The space was nondescript,
with just an office for Bill and one for me and a common area where two
research assistants and a secretary sat.
Bill and I operated on separate tracks. Bill continued to put out his letter
and to work with his investment-advisory clients. My first accounts
were people who knew me from the Conference Board. The Wellington
Fund, predecessor to the Vanguard Group, was the first to sign on. Republic
Steel, America's third-largest steelmaker, was next, and within two years, ten
more steel companies followed, including U.S. Steel, Armco, Jones & Laughlin,
Allegheny-Ludlum, Inland, and Kaiser. For Townsend-Greenspan, this
was the best possible advertisement. Steel was the symbol of American
strength, and if you ran your finger down the Fortune 500 list, which appeared
for the first time in 1955, those names were right near the top. We
gradually added a whole range of clients—Alcoa, Reliance Electric, Burlington
Industries, Mellon National Bank, Mobil Oil, Tenneco, and many more.
A casualty was my Ph.D.—I was just too busy to get it done. Several
times each month I'd have to hop on a plane to call on clients in Pittsburgh
or Chicago or Cleveland; the rest of the time, I was racing to create reports.
I was torn because I liked the topic I'd chosen for my dissertation: the
spending and saving patterns of American households. But taking the oral
exams and completing the dissertation would require at least six solid
months, and to do that, I'd have to scale back my business. I convinced myself
I wouldn't lose anything by dropping out, because I'd continue to read
and study economics in my work. But every couple of months, I'd run into
Professor Burns. He'd always say, "When are you going to get back to work?"
I always felt a pang. (Much later, in the 1970s, I did return to graduate
school, at NYU, and completed my Ph.D.)
The key to Townsend-Greenspan's appeal was our ability to translate
economic analysis into a form business leaders could apply in making de
45
THE AGE OF TURBULENCE
cisions. Say the economy was entering a period of growth. The typical industrial
CEO was most likely a salesman or an engineer or a general
manager who had worked his way up in the company. Knowing what the
gross national product (GNP) was going to do wasn't useful to him. But
if you talked to the CEO of an automobile-parts manufacturing company
and could tell him that "assemblies for Chevrolet over the next six
months are going to be different from what General Motors has announced/'
that was something he could understand and act on.
Today's supply chains are so totally integrated that information between
suppliers and manufacturers flows freely—it's how modern just-in-time
manufacturing works. But back then; the relationship between manufacturers
and suppliers was more like a poker game. If you were a purchasing
manager at an appliance manufacturer looking to buy steel sheet to make
refrigerators, telling the steelmaker's salesman how much sheet you already
had in inventory would only weaken your bargaining position.
The lack of such information left the steel company flying partially blind
in planning its production. Moreover, many of our steel clients' customers
knew only their part of the market. The steel outlook could be radically affected
by a shift in demand for passenger cars, or skyscraper construction,
or oil-drilling pipe, or even tin cans. And that demand, in the short run, was
a reflection of the demand for inventories as well as steel to be consumed.
A forecast system is only as good as the accuracy of its historical database
from which future turns in a cycle can be projected. I'd take into account
historical levels of car and truck output, aircraft assemblies, and more. Data
on steel shipments by product and consuming industry I'd get from the
American Iron and Steel Institute each month, and data on exports (the
United States was heavily exporting steel in those days) and imports (almost
none) from the Department of Commerce. Combining shipments of
domestically produced steel products with imports and exports gave me
the tonnage of each product's receipts by consuming industry. The next
challenge was to figure how much of each historical quarter's steel receipts
the buyers had consumed, and how much had been added to or subtracted
from the buyers' inventory. For that I went back to World War II and Korean
War data: the government had declassified masses of statistics on the
metals industries from the War Production Board, which had been in charge
46
THE MAKING OF AN ECONOMIST
of Uncle Sam's industrial rationing system. Each industry that consumed
steel—autos, machinery construction, oil drilling—had a unique inventory
cycle, and all of them were documented there.
Further analyzed, those figures, combined with my newly acquired
macroeconomic forecasting capabilities (thanks to Sandy Parker), enabled
us to project the level of aggregate steel-industry product shipments. Over
time, we were also able to track individual steel company market shares—
which meant a producer could make informed decisions, given the outlook
for shipments, as to where to shift its resources in the coming quarters to
maximize its profit.
By 1957 I'd worked with the steel companies for several years. Late that
year, I flew to Cleveland to make a presentation to the executive committee
of Republic Steel, whose CEO was Tom Patten. My system indicated
that inventories were building rapidly and that the industry's production
rate was therefore well above the rate at which steel was being consumed.
Production was going to have to come way down just to stop the accumulation.
And it wasn't just the steel industry that was facing a big problem.
"Nineteen fifty-eight is going to be an awful year," I told them. Patten took
issue with that: "Well, the order books are pretty good," he said. Republic
Steel stuck to its production schedule.
About three months later, demand for steel plunged. It was the onset
of the 1958 recession, which turned out to be the sharpest business downturn
since the war. When I was next in Cleveland, Patten generously acknowledged
in front of the executive committee, "Well, you got it right, my
friend."
P
P
redicting the economic downturn that became the 1958 recession was
my first forecast of the economy as a whole. Spending as much time
studying the steel industry as I did put me in an excellent position to see
the downturn coming. Steel was a much more central force in the American
economy then—the economy's strength was much more in durable
goods, most of which are made of steel. I could extrapolate the wider consequences
of steel's weakening, and warn other, nonsteel clients as well.
Still, while calling the 1958 recession benefited our reputation, it
47
THE AGE OF TURBULENCE
wasn't successful macroeconomic forecasting per se that our clients found
most useful. Our work was an analytical evaluation of the forces making
the current economy do what it was doing. Forecasting is simply a projection
of how current imbalances will ultimately resolve. Our service was to
deepen our clients' understanding of the exact nature of the relationships
between forces; what they did with that information was up to them. CEOs
of large corporations are not going to take the word of a thirty-year-old kid
as to where the economy is going. But they might very well listen to what
he thinks are the various balances here and there, especially if they can
check this input against their own knowledge. I'd try to talk on their terms:
not "What's the GNP doing?" but "What is the demand for machine tools
six months out?" or "What is the likelihood of the markup changing between
broad-woven fabrics on the one hand and the market for men's suits
on the other?" I would define what was going on in general terms and then
translate that into the implications for individual businesses. That was my
value-added, and we prospered.
Working with heavy industry gave me a profound appreciation of the
central dynamic of capitalism. "Creative destruction" is an idea that was
articulated by the Harvard economist Joseph Schumpeter in 1942. Like
many powerful ideas, his is simple: A market economy will incessantly revitalize
itself from within by scrapping old and failing businesses and then
