Alan Greenspan

Alan Greenspan, the thirteenth Federal Reserve Chairman

Alan C. Greenspan (born March 6, 1926) is an American economist and was Chairman of the Board of Governors of the Federal Reserve of the United States from 1987 to 2006. Following his retirement as Fed chairman, he accepted an honorary (unpaid) position at HM Treasury in the United Kingdom.

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.

From 2001 until his retirement, he was increasingly criticized 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, as well as for policies seen as leading to a housing bubble. Greenspan was nonetheless still generally considered during that time to be the leading authority on American domestic economic and monetary policy, and his active influence continues to this day.

Personal life and early career

Greenspan was born to a Jewish family in New York City (the original spelling of the family name was "Grynszpan"). 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 subsequently dropped 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.

Starting in 1950, Greenspan began a 20-year association with famed novelist Ayn Rand. He wrote for Rand’s newsletters and authored a chapter of one of her books.

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

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.

Greenspan the Objectivist

During the 1950s and 1960s Greenspan was a friend of author Ayn Rand and a proponent of her Objectivist philosophy, which among other things advocates laissez-faire capitalism as a social and politico-economic ideology. He wrote articles for Objectivist newsletters, and contributed several essays for Rand's 1966 book Capitalism: the Unknown Ideal. In Capitalism: the Unknown Ideal, Greenspan wrote an essay strongly supporting the gold standard. More recently however, he has been criticised by some Objectivists for his actions.

Greenspan continues to advocate laissez-faire capitalism. Some Objectivists find his support for a gold standard somewhat of an irony given the Federal Reserve's role in America's fiat money system and endogenous inflation. He has come under heavy criticism from Objectivists, most notably Leonard Peikoff and Harry Binswanger, as they believe that working for the Federal Reserve is an abandonment of Objectivist and free market principles.

When Greenspan was sworn in as chairman of the Council of Economic Advisers, Ayn Rand attended the ceremony and met Gerald Ford. Greenspan attended Rand's funeral in 1982.

Chairman of the Federal Reserve

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%.

Earlier image of Alan Greenspan

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." 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. 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. 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. Bernanke is for a targeted minimum level of inflation, Greenspan against.

Greenspan and the housing bubble

Greenspan's policies of adjusting interest rates to historic lows and encouraging borrowers to take out nontraditional adjustable-rate mortgages are believed to have contributed to a housing bubble in the U.S. 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.

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?

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" 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, from Sen. Reid and Congressman Barney Frank among others, for his support of Bush's plan to phase out Social Security in favor of private accounts.

Princeton University economist and former Enron advisor Paul Krugman wrote in the New York Times that Greenspan is a "three-card maestro" with a "lack of sincerity" who, "by repeatedly shilling for whatever the Bush administration wants, has betrayed the trust place in the Fed chairman...."

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. House minority leader Nancy Pelosi stated there were serious questions about the Fed's independence as a result of Greenspan's public statements. 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." Furthermore, Greenspan had used his position is Fed Chairman to comment upon fiscal policy as early as 1993, when he supported President Clinton's defecit reduction plan, which included tax hikes and budget cuts.

References

• 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"

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

External links

• "Think Again: Alan Greenspan" from Foreign Policy Magazine
• 1996 speech by Greenspan about the challenges of central banking
• 2003 speech by Greenspan about "Market Economies and Rule of Law"
• Educate Yourself-Greenspan --The Chairman...through the years
• Smartalec Economics Discussion Board: [1] - Growing community for Economic discussion.
• Alan Greenspan's political donations
• Greenspan Warns on Protectionism, BBC News, 26 August 2005
• Gold and Economic Freedom, a 1966 essay by Alan Greenspan
• Conveniently named site praising Greenspan's achievements

Criticism

• Kevin Phillips (2006). American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, New York: Viking.
• Stephen S. Roach (2005). Morgan Stanley Global Economic Forum: Original Sin. See also James Wolcott's comments.
• Fleck on Greenspan
• Making Economic Sense - Chapter 83
• http://themessthatgreenspanmade.blogspot.com
• http://www.buzzflash.com/hartmann/05/07/har05007.html
• From Objectivists: [2], [3], [4], [5], [6], [7]
• From Richard Salsman - Greenspan's Record: Better Than Predecessors, Not As Good as Gold
• Doug Noland. The Greenspan Era: Lessons to be Learned, August 27, 2005.