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Alan Greenspan

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Alan Greenspan

The Honorable Alan C. Greenspan, PhD, KBE (b. March 6, 1926) is an American economist and former Chairman of the Board of Governors of the Federal Reserve of the United States. Following his retirement as Fed chairman, he accepted an honorary (unpaid) position at the UK Treasury.

First appointed Fed chairman by President Ronald Reagan in 1987, he was reappointed at successive four-year intervals until retiring on January 31, 2006, at which time he relinquished the chairmanship to Ben Bernanke. Greenspan was lauded for his handling of the Black Monday stock market crash that occurred very shortly after he first became chairman, as well as for his stewardship of the Internet-driven, "dot-com" economic boom of the 1990s. However, this expansion culminated in a stock market bubble burst in March 2000 followed by a recession in 2001–2002, and Greenspan's policies of adjusting interest rates to historic lows and encouraging borrowers to take out nontraditional adjustable-rate mortgages is believed to have contributed to a housing bubble in the U.S. [1] [2] [3] The Federal Reserve acknowledges the connection between lower interest rates, higher home values, and the increased liquidity the higher home values bring to the overall economy.

"Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission." —Board of Governors of the Federal Reserve System, September 2005. [4]

For this reason some have criticized then Fed Chairman Alan Greenspan for "engineering" the housing bubble:

"It was the Federal Reserve-engineered decline in rates that inflated the housing bubble." —BusinessWeek, July 19, 2004, Is A Housing Bubble About To Burst? [5]

He has been increasingly criticized since 2001 for some statements seen as overstepping the Fed's traditional purview of monetary policy, and others viewed as overly supportive of the policies of President George W. Bush. Greenspan is nonetheless still considered by many to be the leading authority on American domestic economic and monetary policy.

Greenspan was born to a Jewish family in New York City. He studied clarinet at Juilliard from 1943 to 1944 and is known as an accomplished saxophone player. He then attended New York University (NYU), and received a B.S in Economics (summa cum laude) in 1948, and an M.A in Economics in 1950. After NYU, Greenspan attended Columbia University, intending to pursue advanced economic studies, but he would subsequently drop out. Much later, in 1977, NYU also awarded him a Ph.D. in Economics. He did not complete a dissertation, normally required for that degree. On December 14, 2005 he was awarded an honorary Doctor of Commercial Science from NYU, his fourth degree from that institution.

Greenspan has been married to NBC television journalist Andrea Mitchell since 1997.

During the 1950s and 1960s Greenspan was a friend of author-philosopher Ayn Rand and a proponent of her Objectivist movement, which among other things advocated unfettered capitalism as a social and economic philosophy. He wrote articles for Objectivist newsletters, and contributed several essays for Rand's 1966 book Capitalism: the Unknown Ideal. More recently however, he has been criticised by Objectivists for his actions (see below).

From 1948 to 1953, Dr. Greenspan worked as an economic analyst at The Conference Board, a business and industry oriented think-tank in New York City. From 1955 to 1987, Dr. Greenspan was Chairman and President of Townsend-Greenspan & Co., Inc., an economic consulting firm in New York City, a 33-year stint interrupted only from 1974 to 1977 by his service as Chairman of the Council of Economic Advisers under President Gerald Ford. Greenspan also has served as a corporate director for Aluminum Company of America (Alcoa); Automatic Data Processing, Inc.; Capital Cities/ABC, Inc.; General Foods, Inc.; J.P. Morgan & Co., Inc.; Morgan Guaranty Trust Company of New York; Mobil Corporation; and The Pittston Company.[6]

Chairman of the United States Federal Reserve

Earlier image of Alan Greenspan

On June 2, 1987 President Reagan nominated Dr. Greenspan as a successor to Paul Volcker as Chairman of the Board of Governors of the Federal Reserve, and the Senate confirmed him on August 11, 1987. After the nomination, bond markets experienced their biggest one-day drop in 5 years. Just two months after his confirmation he was faced with his first crisis -- the 1987 stock market crash. His terse statement, "the Fed stands ready to provide all necessary liquidity" is seen as having been effective in controlling the damage from that crash. Another famous example of the effect of his closely-parsed comments was his December 5 1996 remark about "irrational exuberance and unduly escalating stock prices" that led Japanese stocks to fall 3.2% [7].

Greenspan was famous for his ability to give technical and confusing speeches. U.S. News & World Report reported that, "Few can confuse Wall Street as thoroughly as Federal Reserve Board Chairman Alan Greenspan can." [8] Greenspan was sometimes so hard to understand that the Motley Fool radio show included a game called "What Did the Fed Chief Say?", where contestants were challenged to interpret snippets of Greenspan's speeches[9]. Greenspan mocked his own speaking style in 1988 when he said,"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said".

On May 18, 2004, he was nominated by President George W. Bush to serve for an unprecedented fifth term as Chairman of the Federal Reserve. He was previously appointed to the post by Presidents Ronald Reagan, George H. W. Bush and Bill Clinton. Greenspan was awarded the Presidential Medal of Freedom, the highest civilian award in the United States, by President George W. Bush in November, 2005 [10]. His honorary titles include Knight Commander of the British Empire, bestowed in 2002 and Commander of the Légion d'honneur (Legion of Honor).

Greenspan's term as a member of the Board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor. Bernanke is a former Governor of the Fed, and his appointment is seen in part as a move to effect a smooth transition. He does disagree with Greenspan on the question of "inflation targeting," a practice in which the Fed makes public a projected inflation rate, effecting a greater transparency in likely Fed moves to raise or lower short-term interest rates. Inflation targeting arguably reduces certain forms of economic volatility [11] Bernanke is for targeting, Greenspan against.

Charges of politicization

Senate minority leader Harry Reid turned heads on March 3, 2005, when he attacked Greenspan as "one of the biggest political hacks we have here in Washington" [12] and called attention to, among other things, the massive deficits contributed to by the 2001 Bush tax cuts Greenspan is widely seen as having supported. Greenspan also received criticism for his support of Bush's plan to phase out Social Security in favor of private accounts. [13]

Charges that Greenspan was veering beyond the Fed's purview of monetary policy into fiscal and political matters traditionally left to lawmakers became more prevalent, coming for example from sources such as Senator Jim Bunning who voted against reconfirming him.[14] House minority leader Nancy Pelosi stated there were serious questions about the Fed's independence as a result of Greenspan's public statements.[15] But others like Senator Mitch McConnell disagreed, stating that Greenspan "has been an independent player at the Fed for a long time under both parties and made an enormous positive contribution." [16]

Criticism from Objectivist philosophers

Greenspan continues to support a gold standard and advocate laissez-faire capitalism [17] [18]. His support for a gold standard is somewhat of an irony given the Federal Reserve's role in America's fiat money. He has come under heavy criticism from Objectivist philosophers, most notably Leonard Peikoff and Harry Binswanger [19], as they believe that working for the Federal Reserve is an abandonment of Objectivist and free market principles.

References

Wikiquote has quotations related to Alan Greenspan.
  • Jerome Tuccille (2002). Alan Shrugged: Alan Greenspan, the World's Most Powerful Banker. Wiley. ISBN 047139906X.
  • Bob Woodward (2001). Maestro: Alan Greenspan and the American Boom. Simon & Schuster. ISBN 0743204123.
  • The Economist (October 15-21, 2005 issue) page 29, "After Alan"
  • ^ The Alan Greenspan Timeline at Objectivism Reference Center
  • ^ 2005 Presidential Medal of Freedom recipients.
  • ^ Paul J. Lim (January 27, 2006). "Game: What Did the Fed Chief Say?" (HTTP). NPR Program Guide: Fun & Games. National Public Radio.

Further reading

  • Justin Martin; Greenspan: The Man behind Money Perseus Books: 2000
  • Ravi Batra; Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy. New York: Palgrave Macmillan 2005. ISBN 1-4039-6859-4

Criticism

Preceded by Chairman of the Federal Reserve
1987–2006 		Succeeded by
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