The Maestro's Legacy
An in-depth examination of Alan Greenspan's influential tenure at the Federal Reserve and his profound impact on global financial policy.
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Overview
The Federal Reserve Chairman
Alan Greenspan, born March 6, 1926, is a distinguished American economist renowned for his nearly two-decade tenure as the 13th Chairman of the Federal Reserve. Appointed by President Ronald Reagan in August 1987, he was reappointed four times, serving until his retirement on January 31, 2006. His 18-year leadership marked the second-longest in the institution's history, surpassed only by William McChesney Martin. Following his departure from public service, Greenspan transitioned to private advisory and consulting roles through his firm, Greenspan Associates LLC.
Public Persona and Political Scrutiny
Despite a generally reserved public demeanor, Greenspan's prominence grew to such an extent that he was often likened to a "rock star" by media observers. However, his tenure was not without controversy. He faced criticism from Democratic congressional leaders for perceived politicization of his office, particularly due to his support for Social Security privatization and specific tax cuts proposed by the Bush administration. These actions sparked debates regarding the Federal Reserve's independence and its role in fiscal policy.
Economic Policy Debates
Greenspan's "easy-money" policies, notably the "Greenspan put," have been cited by many as a significant contributing factor to major economic phenomena, including the dot-com bubble and the subprime mortgage crisis, which emerged shortly after his retirement. While critics argue these policies tarnished his reputation, Greenspan contended that the housing bubble was primarily a global phenomenon driven by declining long-term interest rates, influenced by international savings and investment dynamics, rather than solely by the Fed's short-term rate decisions.
Early Life & Education
New York Roots
Alan Greenspan was born in Washington Heights, New York City, on March 6, 1926. His heritage includes Romanian Jewish descent from his father, Herbert Greenspan, and Hungarian Jewish descent from his mother, Rose Goldsmith. Following his parents' divorce, he was raised by his mother in the home of his Russian-born maternal grandparents, while his father pursued a career as a stockbroker and consultant in New York City.
Musical Beginnings
Greenspan attended George Washington High School from 1940 to 1943, where he was a classmate of John Kemeny. During this period, he also cultivated a talent for music, playing the clarinet and saxophone alongside jazz legend Stan Getz. His musical pursuits led him to study clarinet at the prestigious Juilliard School from 1943 to 1944. Notably, one of his bandmates in the Woody Herman band was Leonard Garment, who would later serve as Richard Nixon's special counsel.
Academic Pursuits
In 1945, Greenspan shifted his focus to economics, enrolling at New York University's Stern School of Business. He earned a Bachelor of Arts degree in economics summa cum laude in 1948, followed by a Master of Arts degree in economics in 1950. He continued his advanced economic studies at Columbia University under Arthur Burns but eventually withdrew due to increasing demands from his burgeoning career at Townsend-Greenspan & Company. He later completed his academic journey, obtaining a Ph.D. in economics from New York University in 1977.
Career: Pre-Fed
Early Economic Analysis
During his economics studies at New York University, Greenspan gained practical experience working under Eugene Banks, a managing director at the prominent Wall Street investment bank Brown Brothers Harriman, within their equity research department. From 1948 to 1953, he further honed his analytical skills as an analyst at the National Industrial Conference Board, now known as the Conference Board, a leading business- and industry-focused think tank in New York City.
Founding Townsend-Greenspan & Co.
From 1955 to 1987, Greenspan was chairman and president of Townsend-Greenspan & Co., Inc., an economics consulting firm based in New York City. He led this firm for 32 years, a period interrupted only by his significant public service from 1974 to 1977, when he served as Chairman of the Council of Economic Advisers under President Gerald Ford. This private sector experience provided him with deep insights into market dynamics and corporate strategy.
Influential Advisory Roles
Beyond his consulting firm, Greenspan held numerous influential positions. In 1968, he served as Richard Nixon's coordinator on domestic policy during his nomination campaign. He also sat on the corporate boards of major companies such as Aluminum Company of America (Alcoa), Automatic Data Processing, Capital Cities/ABC, Inc., General Foods, J.P. Morgan & Co., Morgan Guaranty Trust Company, Mobil Corporation, and the Pittston Company. His involvement extended to foreign policy, serving as a director of the Council on Foreign Relations between 1982 and 1988, and as a member of the Washington-based financial advisory body, the Group of Thirty, in 1984.
Federal Reserve Chairmanship
Appointment and Early Challenges
On June 2, 1987, President Ronald Reagan nominated Alan Greenspan to succeed Paul Volcker as Chairman of the Board of Governors of the Federal Reserve. The Senate confirmed his appointment on August 11, 1987. Just two months into his tenure, Greenspan faced a monumental challenge: the 1987 stock market crash, known as Black Monday. In response, the Fed swiftly affirmed its readiness to provide liquidity to support the economic and financial system, a move that became emblematic of his approach to market crises, often referred to as the "Greenspan put."
Policy and Reappointments
Greenspan's monetary policy was largely influenced by monetarist and Austrian economic principles, often aligning with standard Taylor rule prescriptions. He was reappointed by successive presidents, including George H. W. Bush and Bill Clinton, demonstrating bipartisan confidence in his leadership. He notably supported Clinton's 1993 deficit reduction program and played a crucial role in organizing the U.S. bailout of Mexico during the 1994โ1995 Mexican peso crisis. In 2004, President George W. Bush nominated him for an unprecedented fifth term.
Navigating Economic Bubbles
In 2000, Greenspan initiated a series of interest rate hikes, actions widely believed to have contributed to the bursting of the dot-com bubble. However, critics like Paul Krugman argued that he acted too late, waiting for the bubble to burst before attempting to mitigate its aftermath. Following the September 11 attacks and various corporate scandals in 2001, the Fed, under Greenspan, significantly cut interest rates, bringing the federal funds rate down to 1% by 2004. This period of loose monetary policy later drew criticism for potentially fueling the housing bubble.
Post-Fed Engagements
Private Sector Return
Immediately after concluding his distinguished service at the Federal Reserve on January 31, 2006, Alan Greenspan established his own economic consulting firm, Greenspan Associates LLC. This marked his return to the private sector, where he continued to offer his expertise on global economic trends and financial markets. Concurrently, he accepted an honorary, unpaid position at HM Treasury in the United Kingdom, further extending his international influence.
Economic Forecasts and Advisory Roles
In February 2007, Greenspan publicly forecasted a potential recession in the United States by early 2008, a prediction that preceded a significant drop in the Dow Jones Industrial Average the following day. His insights remained highly sought after; in May 2007, he was engaged by Pacific Investment Management Company (PIMCO) as a special consultant, participating in their economic forums and advising bond managers on Fed interest rate policy. By August 2007, Deutsche Bank also retained him as a senior advisor for its investment banking team and clients.
Hedge Fund Consultation and Immigration Views
In early 2008, Greenspan joined the hedge fund Paulson & Co. as an adviser, a firm that had notably anticipated the sub-prime housing market collapse in 2007. This engagement drew scrutiny, as some commentators attributed the housing crisis to Greenspan's earlier policies at the Fed. Additionally, in April 2009, he testified before a U.S. Senate subcommittee, advocating for a substantial increase in the H-1B visa quota, arguing it was "far too small to meet the need" and essential for the economy as skilled baby boomers approached retirement.
Philosophical Roots: Objectivism
Association with Ayn Rand
In the early 1950s, Alan Greenspan began a significant intellectual and personal association with the novelist and Objectivist philosopher Ayn Rand, introduced by his first wife, Joan Mitchell. Rand, who affectionately nicknamed Greenspan "the undertaker" due to his dark attire and reserved demeanor, played a pivotal role in his intellectual development. Initially a logical positivist, Greenspan was converted to Rand's philosophy of Objectivism by her associate Nathaniel Branden.
Contributions to Objectivist Thought
Greenspan became a key member of Rand's inner circle, "the Ayn Rand Collective," participating in discussions and reading Atlas Shrugged as it was being written. Throughout the 1950s and 1960s, he was an active proponent of Objectivism, contributing articles to Objectivist newsletters and several essays to Rand's 1966 book, Capitalism: The Unknown Ideal. Notably, one of his essays championed the gold standard, reflecting his early economic convictions. He also delivered a ten-lecture course, "The Economics of a Free Society," under the Nathaniel Branden Institute, focusing on prosperity, depression, government intervention, and collectivist economics.
Objectivism and Policy: A Complex Relationship
Despite his deep philosophical roots in Objectivism, Greenspan's actions as Federal Reserve Chairman later drew criticism from some Objectivists, such as Harry Binswanger, who argued he abandoned free-market principles. Greenspan, however, clarified that in a democratic society, compromises are necessary, stating that while he believed a system without a central bank and with a gold standard would perform "extremely well," his role required pragmatic adjustments. In 2008, he conceded a "flaw" in his free-market ideology regarding regulation, expressing "shocked disbelief" that lending institutions did not adequately protect shareholder equity. He maintained that free competitive markets remain the "unrivaled way to organize economies," attributing errors to the application of market principles rather than the principles themselves. E. Ray Canterbery has extensively chronicled Rand's influence on Greenspan's monetary policy, suggesting it had "pernicious effects."
Economic Receptions & Critiques
The Housing Bubble Debate
Greenspan's role in the housing bubble and subsequent subprime mortgage crisis remains a contentious topic. While he acknowledged a bubble in the U.S. housing market by late 2005 and 2006, forecasting "large double digit declines" in home values, he attributed its fundamental cause to a global decline in real long-term interest rates, arguing these were beyond central bank control due to the immense scale of global asset markets. However, critics point to the Federal Reserve's actions under his leadership, particularly the reduction of the federal funds rate to 1% after 9/11 and the 2002 accounting scandals, as a direct contributor to the surge in home sales and refinancing that fueled the bubble.
The 2008 Financial Crisis
Greenspan characterized the 2008 financial crisis as the most severe since World War II, yet he maintained that market flexibility and open competition were the most reliable safeguards against economic failure. He argued that anticipating all market "discontinuities" is impossible. This stance drew significant criticism from economists like J. Bradford DeLong, Paul Krugman, and Michael Hudson, who linked Greenspan's policies, particularly his opposition to derivatives regulation, to the crisis. A 1999 government report, which Greenspan co-authored, was instrumental in exempting most over-the-counter derivatives from government oversight, a decision that later proved highly controversial.
Political Views & Allegations
Greenspan self-identified as a "lifelong libertarian Republican." However, some free-market critics argue that his actions as Fed Chair, such as maintaining prolonged artificially low interest rates, deviated from his libertarian ideals and contributed to asset bubbles and moral hazard. His public support for President George W. Bush's Social Security privatization plan and tax cuts led to accusations of politicizing his office. Democratic leaders like Harry Reid and Nancy Pelosi criticized him for abandoning the Fed's independence and for inconsistent stances on fiscal policy. Paul Krugman famously called him a "three-card maestro" for what he perceived as a lack of sincerity and shilling for the Bush administration. Despite these criticisms, Republican Senator Mitch McConnell defended Greenspan's independence and positive contributions. Greenspan had, however, commented on fiscal policy previously, notably supporting President Clinton's deficit reduction plan in 1993. Noam Chomsky also critiqued Greenspan's 1997 testimony, where he linked growing worker insecurity to low inflation, characterizing it as a self-serving attitude of the economic elite.
Personal Life
Marriages and Relationships
Alan Greenspan's personal life saw two marriages. In October 1952, he married Canadian artist Joan Mitchell, though this union was annulled just ten months later. In the late 1970s, he dated prominent newswoman Barbara Walters. He later began a relationship with journalist Andrea Mitchell in December 1984, when he was 58 and she was 38. They married in April 1997, with Supreme Court Justice Ruth Bader Ginsburg officiating. Due to the annulment of his first marriage, his marriage to Andrea Mitchell is legally considered his first completed marriage.
A Unique Writing Habit
Greenspan's memoir, "The Age of Turbulence: Adventures in a New World," published in September 2007, offered a glimpse into his unique writing process. He revealed that he wrote much of the book in longhand, often while soaking in the bathtub. This unusual habit, which he adopted after injuring his back in 1971, became a regular part of his routine, allowing him to reflect and compose his thoughts on government, economics, and global issues.
Distinctions & Honors
Prestigious Awards
Alan Greenspan has received numerous accolades recognizing his significant contributions to public service and economics. These include the Presidential Medal of Freedom, the highest civilian award in the United States, presented by President George W. Bush in November 2005. He also received the Department of Defense Medal for Distinguished Public Service in January 2006. Internationally, he was honored as a Commander of the Legion of Honour (France) in 2000 and a Knight Commander of the Order of the British Empire (United Kingdom) in 2002, receiving an honorary knighthood from Queen Elizabeth II in September 2002.
Professional and Academic Recognition
His professional and academic distinctions are extensive. In 1976, he received the U.S. Senator John Heinz Award for Greatest Public Service by an Elected or Appointed Official from the Jefferson Awards. He was elected a fellow of the American Statistical Association in 1989 and to the American Philosophical Society in 2000. Further recognition includes the Dwight D. Eisenhower Medal for Leadership and Service (2004), the inaugural Harry S. Truman Medal for Economic Policy (2005), and the Thomas Jefferson Foundation Medal in Citizen Leadership (2007) from the University of Virginia. In 2012, he received the Eugene J. Keogh Award for Distinguished Public Service from NYU.
Honorary Degrees
Greenspan has been awarded several honorary degrees from esteemed academic institutions worldwide, recognizing his profound impact on economic thought and policy.
Publications
Authored Works
Alan Greenspan has authored and co-authored several significant books and economic reports throughout his career, reflecting his deep engagement with economic theory, policy, and financial markets. These publications offer valuable insights into his perspectives on global economics, risk management, and the future of forecasting.
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References
References
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- Martin 2000, pp.ย 11รขยย13.
- Martin 2000, pp.ย 27รขยย31.
- Martin 2000, p.ย 34.
- Martin 2000, p.ย 129.
- Martin 2000, pp.ย 217รขยย218.
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