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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]


Longevity in an office is no automatic guarantee of worth. So the fact that Dr Alan Greenspan, chairman of the U.S. Federal Reserve, has been in the post for 18 years and is shortly to step down, does not mean he must qualify for greatness. But even a sceptic of the need for central banking like me believes that Greenspan, who is nearly 80 years old, is a remarkable man. His career spans the financial crash of 1987, the recession of the early 90s, the long stock market boom, the Asian financial crisis, the Russian debt default and the rescue of hedge fund Long Term Capital Management, and of course, 9/11 and its aftermath.

I am not going to chart every nip and tuck of his tenure to state whether he was a monetary policy genius, a wise man who realised his limitations and that of his office, or just very lucky. I suspect that luck played a part but what jumps out at me, from reading articles like this, or this fine biography by Jerome Tuccille, is that Greenspan was a very wise operator indeed. America, and indeed most of the western industrialised world, has enjoyed a relatively long period of economic growth and low inflation. The United States has certainly done so. And Greenspan, being at heart a classical liberal, had the intelligence and humility to chalk up 99 percent of the credit to entrepreneurs and their employees rather than to the supposed fine arts of macro-economic policy.

I remain a sceptic, though, of the need for central banking. Greenspan has left no ideological or operative legacy that could be enshrined in doctrine and used as a clear guide to future policy. Although determined to protect price stability, he could be daring and flexible when required, far more so than the more conventionally monetarist European Central Bank. The problem though is that Greenspan’s replacement could be made in a far different mould.

America, and indeed the world, has been very lucky to have a man as wise as Greenspan at the helm. But it is surely dangerous that an economy as big as that of the United States should allow so much economic power to be held, ultimately, in the hands of one man – even if he does have very smart folk working with him. Of course, the business of “doing monetary policy” has become better over the past decades. Britain’s own central bank runs monetary policy with a studied approach unimaginable in the horror years of the 1970s when money was treated as a metaphysical abstraction. But things could go wrong. Sooner or later the men with the interest rate levers are going to make a big mistake and the results could last a while.

Meanwhile, this article scans possible successors to the clarinet-playing former disciple of Ayn Rand and gold-backed currency.

13 comments to Greenspan-o-rama

  • Actually, Greenspan did make one quite radical change in Fed policy. Previous Fed leaders had concentrated primarily on employment, and tried to tune monetary policy to keep unemployment steady within a certain range.

    Greenspan primarily concentrated on inflation, and tried to tune monetary policy to keep inflation low, but not turning the crank so hard as to strangle economic growth. As a result, the unemployment rate actually fell below the previous “safe zone”, and a lot of people got worried.

    I think future Fed leaders will continue Greenspan’s policy of concentrating primarily on inflation rates instead of primarily on unemployment rates.

  • Edward

    It’s a little early to declare Greenspan’s reign a success.

    The dollar is on a downward spiral, inflation is accelerating, and the whole economy rests on cheap credit and a housing bubble. I for one think the US has lean times ahead.

  • The decline of the dollar has been deliberate, not as a Fed policy but as a US Government policy. The strong dollar permitted a lot of other nations to take advantage of us in bilateral trade (most notably China).

    But it’s not in a “downward spiral” as such. The reason it’s been falling is that the US Government hasn’t acted to prop it up. If it is seen as “spiraling”, there’s much that can be done to support it.

  • Stephan

    I agree that Greenspan is nothing short of remarkable, and that he was nothing less then prudent in his management of the Federal Reserve Bank (the worlds most powerful central bank). Nonetheless, a bad system is a bad system. Whether managed by a wise man or a fool, its nature remains the same. I would not argue that Alan Greenspan helped the economy so much as he simply mitigated the harmful effects that a central bank is responsible for. Things could indeed have been far worse. I think that money is nothing more then another commodity on the market place, in fact its the ultimate commodity, the one by which all others are measured. This being the case, the socialist calculation problem still would exist. If we know that the state cannot supply our other goods, then why is this rule disregarded when it comes to money. Our supply of cash is not supplied by the actors of the market, but by the very type of organization that is so anathema to efficient distribution of other goods that exists on the free market.

  • Jacob

    “The reason it’s been falling is that the US Government hasn’t acted to prop it up.”

    “The reason the dollar has been falling” is because of economic realities – probably the enormous and uncontrolled government deficit.
    It cannot be propped up artificially by the government except maybe for a very short time.

    “The decline of the dollar has been deliberate … as a Government policy…” – maybe – if you consider the deficit a deliberate government policy which I doubt it is – it’s rather a default policy – spend, spend and spend again….

    Big deficits, oil prices sky high – something has got to give – I’m afraid Greenspan’s succesor will have some crisis on his hands soon.

  • John East

    I love Mr Magoo, sorry, Greenspan. I’ve particularly enjoyed listening to his lengthy Q&A sessions with the Congress which are usually broadcast live on financial TV. The guy is a real charmer, has brilliant presentation skills, and can keep me glued to the box for his whole presentation. It’s only after the show that one begins to wonder what the hell was he talking about. To be fair to the guy, markets hang on his every word so he has little choice but to talk in riddles.

    Where I do take issue with him is that as Fed Chairman he has been doing the opposite to what he used to stand for. Back in 1966 (I know it was a long time ago, and people are allowed to change their minds, but he was in his mid/late 30’s then so his views were probably well developed at the time), he said this:
    “Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes…..the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale. Deficit spending is simply a scheme for the confiscation of wealth.”
    Pretty much to the point back in 1966, but as Fed Chairman he’s gone native. He’s condemned himself as a welfare statist from his own mouth. Now he says just enough against the deficits to enable him to claim, “I told you so, it wasn’t my fault” when the proverbial eventually hits the fan.

    I fear history won’t be kind to Alan Greenspan.

  • Johnathan

    John East, hmm, who knows how history will judge the fella (who is this “history” guy anyway? Is he in the phone book?”). IThe trouble is, John, that most folk outside the groves of libertarian activism are unaware that AG has partly spurned his former embrace of free banking and unadulterated laissez faire. He could have stuck to academic life but inevitably, by choosing his career, has strayed a bit off the reservation. Compared to most Republicans or Dems, there is no contest. Mr Magoo he certainly ain’t.

    Happy retirement, Al!

  • Jacob

    “I fear history won’t be kind to Alan Greenspan.”

    I think that Fed chairmen usually don’t make it into history. Who was, say, Lincoln’s Fed Chairman ? So, from this angle Greenspan has not much to fear.

    And he isn’t really to balme for the deficits, he did not make them. Sure, he could have spoken out louder about them, but if he did he would not have been chairman for so long.

  • John K


    So you think there was a Federal Reserve Board in Lincoln’s time? Hmm, what do they teach in schools these days?

    By the way, who was head of NASA in Washington’s administration? I’ve been looking in the books, but for some reason can’t find any mention of him.

  • Jacob

    “So you think there was a Federal Reserve Board in Lincoln’s time?”

    OK, so who was Fed chairman under FDR ?, under Calvin Coolidge ? Or Lincoln’s economic advisor ? Or any economics bureaucrat or secretary in any administration of more than 50 years ago ?

    “who was head of NASA in Washington’s administration?”
    Who was head of ANYTHING in Washington’s administration?

    No, these personages, as terribly important as they are in their time, don’t make it into history.

  • John K

    I think a nerve may have been touched.

  • Salmon P. Chase was Lincoln’s treasury secretary.
    Alexander Hamilton was Washington’s.

    Didn’t have to look up either.
    *hangs head in shame*

  • Sylvain Galineau

    I certainly admire Greenspan’s ability to rewrite the past as he sees fit. One year he denounces ‘irrational exuberance’ and speaks of bubbles the next. A few years later he can claim there was no way to know at the time whether there was in fact a bubble. Bubble ? Moi ? Where ?

    As interest rates reached what was a clear bottom and before starting a unavoidable and expected series of increases, he suggested that people get adjustable-rate mortgages, surely the worst instances of public financial advice ever.

    And the sheep applaud.