Greenspan, Alan 1926-
Alan Greenspan spent much of his career at the highest levels of government economics. He served as a top advisor to presidents Ford and Nixon, but is most widely known for his long tenure as chairman of the Federal Reserve, a position he held from 1987 to 2006.
For much of that period, Greenspan was arguably the most influential economist in the world. His early reputation as chairman of the Fed was boosted by his able handling of the 1987 stock market crash, wherein he quickly provided the economy with the liquidity needed to offset the market’s falloff. Beginning in the mid-1990s, Greenspan was among the first to recognize the importance of productivity’s acceleration. Given this increase in the growth of output per hour, Greenspan believed that the economy’s “speed limit”—the rate of growth consistent with stable inflation—had increased. During the latter 1990s, the unemployment rate fell well below the comfort level of most economists, yet inflation decelerated, and broadly shared real wage gains were handily paid for out of rising productivity growth.
Greenspan was widely viewed as favoring conservative economic policy, a view reinforced by his early association with the libertarian, antiregulatory philosophy of the writer Ayn Rand. And while he exhibited throughout his career a strong preference for market-driven outcomes and a diminished role for government, his approach to monetary policy was largely pragmatic and data-driven. Though he avoided true “inflation-targeting”—explicitly stating the range of price growth acceptable to the Fed, a practice he viewed as too restrictive—he focused closely on measures of inflation and resource utilization, urging the Federal Open Market Committee (the group of Fed governors that set interest-rate policy) to adjust rates based on the relationships between these variables.
Though generally highly regarded by the economics and policy community, Greenspan has had his critics. Throughout his term at the Fed, he was sometimes viewed as elevating inflationary concerns above the goal of full employment, despite the Fed’s mandate to maintain balance in its simultaneous pursuit of stable prices and low unemployment. Most recently, some have maintained that Greenspan played a decisive role in the swing from fiscal surplus to fiscal deficits. Based on what turned out to be a highly optimistic forecast of government revenues, Greenspan endorsed large tax cuts proposed by the Bush administration. Though the chairperson of the Fed is a political appointee, it is rare for the Fed chief to play such an overtly political role in a policy matter before the Congress. Furthermore, his endorsement was instrumental in the passage of these cuts, which ultimately played an integral role in the move from federal budget surpluses in the latter 1990s to deficits in the 2000s.
The most common criticism of Greenspan, however, is that he presided over damaging investment bubbles that could have been avoided by more aggressive Fed policy. Two major speculative bubbles emerged over Greenspan’s tenure: the information technology (IT) bubble of the latter 1990s and the housing bubble of the 2000s. Speculation in IT firms, some of which had little more than a sketchy business plan, was rampant in the 1990s, while at the same time, many firms overinvested in IT-related goods and personnel. When it became clear that returns on these investments could not be sustained, a large sell-off of stocks and IT-related assets ensued. Shortly thereafter—in March 2001—the economy entered an investment-driven recession.
More recently, speculative bubbles formed in housing markets as prices were steeply bid up, particularly in highly populated areas of the country. Though Greenspan observed the sharp rise in home values, he again refrained from criticizing the development of what some observers recognized as a housing bubble. In fact, critics argue that Greenspan and the Fed further inflated the bubble by sharply lowering interest rates in response to the recession of 2001. Moreover, many homeowners took advantage of the rising value of their home equity, and boosted their consumption with cash borrowed against their homes. As this bubble began to burst in the mid-2000s, home prices fell steeply, slowing the economy and hurting key economic sectors, such as construction and real estate.
In both cases, Greenspan and the Fed did nothing to intervene as speculative bubbles formed. During the formation of the IT-bubble in 1996, Greenspan popularized the oft-repeated term “irrational exuberance,” suggesting speculation was inflating asset values. Thereafter, however, he refrained from either critical scrutiny of the stock market’s run-up, or more concrete policies, such as raising the Fed’s margin requirements (i.e., limiting the amount that investors could borrow to purchase stocks “on margin”).
Prior to retiring from the Fed, Greenspan defended his lack of action in these cases by claiming the Fed has neither the ability to recognize bubbles, nor the tools to deflate them. Especially given the fact that Greenspan himself clearly recognized the irrational nature of the stock market’s climb in the latter 1990s, the first part of this defense seems weak. Whether the Fed could have intervened is another question. Reflecting on the IT bubble, Greenspan reasonably argued that “it was far from obvious [that the bubble] could be pre-empted short of the central bank inducing a substantial contraction in economic activity, the very outcome we were seeking to avoid” (Greenspan 2002).
These criticisms aside, Greenspan will likely be remembered in a positive light, as an excellent crisis manager and an able central banker who presided over two of the longest economic expansions in the country’s history. True, his conservative political ideology inappropriately broke through on occasion, and he might have led the Fed to do more to push back against speculative bubbles that formed on his watch. Nonetheless, his economic insights and data-driven approach to monetary policy remain the model for central bankers today. In fact, when nominated by President George W. Bush to succeed Greenspan, current Fed chief Ben Bernanke paid a high compliment to the retiring chairman: “[I]f I am confirmed to this position, my first priority will be to maintain continuity with the policies and policy strategies established during the Greenspan years” (The White House 2005).
SEE ALSO Bubbles; Bull and Bear Markets; Central Banks; Depression, Economic; Economic Crises; Federal Reserve System, U.S.; Financial Instability Hypothesis; Financial Markets; Interest Rates; Internet Bubble; Macroeconomics; Policy, Monetary; Recession; Speculation; Stock Exchanges
Galbraith, James K. 2006. Unbearable Cost: Bush, Greenspan, and the Economics of Empire. Basingstoke, U.K.: Palgrave Macmillan.
Greenspan, Alan. 2002. Economic Volatility. Remarks by Chairman Alan Greenspan at a Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30. http://www.federalreserve.gov/boarddocs/speeches/2002/20020830/.
Jones, David M. 2002. Unlocking the Secrets of the Fed: How Monetary Policy Affects the Economy and Your Wealth-Creation Potential. Hoboken, NJ: Wiley.
The White House. 2005. President Appoints Dr. Ben Bernanke for Chairman of the Federal Reserve. October 24. http://www.whitehouse.gov/news/releases/2005/10/20051024-2.html.
Tuccille, Jerome. 2002. Alan Shrugged: The Life and Times of Alan Greenspan, the World’s Most Powerful Banker. Hoboken, NJ: Wiley.
Woodward, Bob. 2001. Maestro: Greenspan’s Fed and the American Boom. New York: Simon & Schuster.
Federal Reserve Board
Alan Greenspan is the chairman of the Federal Reserve Board, a position he has held since 1987. In his fourth term, his appointment will expire in 2004. Greenspan is widely known for his intellectual abilities, his introspective and aloof personality, and his ability to finesse the national economy with a light touch.
Alan Greenspan was born on March 6, 1926, in New York City to Herbert and Rose (Goldsmith) Greenspan. His parents divorced when he was five years old, and Greenspan and his mother moved in with his maternal grandparents. The four shared a cramped one–bedroom apartment. Greenspan attended public schools, where he was a good, although not exceptional, student. During his school days, Greenspan developed a reputation for his aloofness and introspective personality—characteristics for which he would be well known throughout his adult life. He developed a keen interest in music, studying the clarinet and saxophone. Greenspan graduated from George Washington High School in 1943.
With dreams of becoming a professional musician, Greenspan enrolled in the prestigious Julliard School of Music as a clarinet major. However, he dropped out in less than a year to join Henry Jerome, who had offered Greenspan $62 a week to play in his swing band. In January 1944, Greenspan began touring the eastern United States. Although a very good amateur musician, Greenspan, by his own definition, was an average professional. Several months before the band dissolved in 1945, he quit, having decided to pursue a new career.
After giving up on the idea of making a career in music, Greenspan decided to investigate his other serious interest—economics. To that end, he enrolled in New York University, from which he graduated with a B.S. in economics in 1948, with highest honors. He went on to pursue his graduate studies at Columbia University, where he came under the influence of well–known economist Arthur Burns, who would later serve as the chairman of the Federal Reserve Board (also known as "the Fed") from 1970 to 1978. Greenspan completed his master's degree in 1950, but dropped out of the Ph.D. program before finishing due to a lack of funds. In 1977 New York University awarded Greenspan a Ph.D. based on his contribution to economics.
During the 1950s, Greenspan encountered Ayn Rand, a Russian–born philosopher and author of the best–selling novel The Fountainhead. For the next 15 years, Greenspan socialized and philosophized within the inner circle of Rand and her followers, called objectivists. Rand preached in the defense of capitalism and free market economy. Later, Greenspan would say that one of the most important things he learned from Rand was that not only did the capitalist system work as an economic model in terms of efficiency and practicality, it was also moral.
In 1952 Greenspan went on a blind date with Joan Mitchell. Ten months later the couple married. However, before their first anniversary, the two decided to split and have the marriage annulled. After the annulment Greenspan and Mitchell remained good friends. On April 6, 1997, Greenspan married NBC news correspondent Andrea Mitchell, after a twelve–year courtship. The two have no children.
After dropping out of graduate school, Greenspan began working for the National Industrial Conference Board, later known simply as the Conference Board, a nonprofit organization that studies business practices. Greenspan focused his work on researching issues that affect heavy industry. In 1954, twenty–seven–year–old Greenspan partnered with sixty–five–year–old William Townsend to create the economic consulting firm, Townsend–Greenspan & Company. Townsend, who had been in the business since 1929, needed a new partner, and Greenspan was anxiously awaiting a chance to step out on his own. The new team shared a small office on Wall Street, and Greenspan quickly began being noticed as a man who had an incredible affinity to numbers, data, and statistics. By the late 1950s, Townsend–Greenspan was a well–established name with industrialists, and the company carried some impressive clients on their books, including U.S. Steel, Owens Corning, and Aluminum Company of America (Alcoa). When Townsend died of a heart attack in 1958, Greenspan brought in Kathryn Eickhoff as a new partner.
By the late 1960s Greenspan was a millionaire and living in an apartment at the United Nations Plaza, sharing an address with Johnny Carson and Walter Cronkite. Despite the show of obvious financial success, few if any of Greenspan's friends predicted his coming near–celebrity status as he stepped into the world of politics. Justin Martin noted in his biography, Greenspan: The Man Behind the Money, "The general impression among people who knew Greenspan in those days was that he wasn't exactly marked for greatness. . . . He was a success, no question. But no one expected him to rise to dizzying heights. People generally found him modest, reliable, gracious, erudite, and more than a tad introspective. None of these traits seemed to lend themselves to setting the world on fire. His old friends were destined to watch his career unfold. . . in stunned amazement."
Chronology: Alan Greenspan
1954: Became a partner in Townsend–Greenspan, an economic consulting firm.
1968: Joined Richard Nixon's presidential campaign as a policy adviser.
1974: Appointed by Nixon as chair of the Council of Economic Advisers.
1975: Appeared on the cover of Newsweek.
1981: Appointed by Ronald Reagan as the chair of National Commission on Social Security Reform.
1987: Appointed by Reagan as the chair of the Federal Reserve Board; closed Townsend–Greenspan.
2000: Nomination approved to a fourth term as chair of the Federal Reserve Board, ending 2004.
Greenspan's first encounter with organized politics came in 1968 when a friend introduced him to Richard Nixon, who invited Greenspan to join his presidential campaign as a domestic policy adviser, a part–time volunteer position. Although Greenspan declined Nixon's offer to join him on staff in Washington after winning the election, Greenspan remained attached to politics by being appointed to numerous commissions, including the Task Force on Economic Growth, the Commission on Financial Structure and Regulation, and the Commission for an All–Volunteer Armed Forces. The latter, referred to as the Gates Commission, ultimately recommended an end to the military draft. Through the early 1970s Greenspan split his time between Washington and New York where he continued to run Townsend–Greenspan.
In 1974 Greenspan was offered a job as the chair of the Council of Economic Advisers (CEA) by the Nixon administration. After steadfastly refusing the position, Greenspan finally was convinced. He turned his firm over to his employees, moved to Washington, and traded his $300,000 salary for the $42,000 the CEA paid. By the time Greenspan's nomination had been confirmed, Nixon had resigned amidst the Watergate scandal, and the economy was in a tailspin of inflation. While chairing a series of meetings on how the economy was affecting a variety of social concerns, Greenspan made his biggest public blunder. When accused by a participant that Ford's policies favored the rich, Greenspan, trying to explain that economy affects everyone, responded, "If you really wanted to examine who percentage–wise is hurt the most in their incomes, it is the Wall Street brokers. I mean, their incomes have gone down the most." Unfortunately, Greenspan's natural propensity to state the numbers was a public relations disaster. He later amended his statement in a joint session of Congress, saying, "Obviously the poor are suffering more."
Greenspan's involvement in bringing the economy back in line, and his strong influence on President Ford, brought him a certain measure of fame in the mid–1970s. In 1975 he appeared on the cover of Newsweek. He drew further media attention when he began accompanying Barbara Walters to social events. However, Greenspan receded from the public light after Ford lost the 1976 presidential election to Jimmy Carter. He stepped down from the chair of the CEA and returned to New York and his consulting firm.
When Ronald Reagan made his successful bid for the presidency in 1980, Greenspan reentered politics as an economic adviser to the campaign. He continued to advise Reagan following the election, and in 1981, when social security funding became a divisive topic, Reagan called on Greenspan to chair the newly formed National Commission on Social Security Reform, later known as the Greenspan Commission. Reagan had chosen Greenspan because he was widely regarded for his economic abilities, his ability to be bipartisan, and his skill at remaining calm under intense pressure. When the commission's work was finished, resulting in a social security reform bill passed into law in 1983, Greenspan was once again out of the Washington limelight. But that would all change in 1987.
On June 2, 1987, Reagan announced that he was nominating Greenspan as the next chairman of the Fed. The stock market reacted first; it dropped twenty points, but rebounded quickly, reflecting a general comfort felt by brokers with Reagan's selection. However, international markets reacted more severely; one of the main contentions against Greenspan's nomination was his lack of experience in global economics. Even during his nomination hearings, Greenspan was perfecting his ability to speak without saying too much—a necessary trait when, as Fed chairman, a simple change in his mood, voice, or outlook could cause a major reaction by the economy. For example, according to Martin, when asked a question on antitrust, he responded, "I am, as you point out, philosophically opposed to the Sherman Act. I have been and continue to be. But I understand it, and I understand the legal criteria which are involved in applying it and, hopefully, I am able to separate my own personal views from what is legally required." To which the questioner responded, "That is both very discomforting and very comforting, if you know what I mean."
On July 31, 1987, Greenspan closed the firm Townsend–Greenspan. Days later the Senate approved his nomination by a vote of 91 to 2, and on August 11, he was sworn in as the thirteenth chairman of the Federal Reserve. Greenspan continued to serve as chair of the Fed through Reagan's presidency. He was reappointed to a second four–year term by President George Bush in 1991. Four years later, Bill Clinton awarded him a third term as chair, despite their different party affiliations, and in 2000 Clinton reappointed him to a fourth term, which ends on June 20, 2004.
Social and Economic Impact
The Fed serves as the nation's central bank. Its job is to monitor the growth of the economy and take measures to keep it from growing too fast, which leads to inflation, or from growing too slowly, which leads to recession. The Fed has controls how much money is in circulation, regulates how much money banks must have on hand, and sets the interest rate on money it loans to banks. For example, if the Fed increases the interest rate it charges banks, banks, in turn, increase the interest rates they charge consumers. As a result, fewer people borrow money, less money is spent, and the economy slows. On the other hand, if the Fed decreases interest rates, banks follow, and borrowing becomes more attractive to consumers, thus fueling the economy.
Just two months after his appointment, the bottom fell out of the stock market, and Greenspan had a full–scale economic crisis on his hands. On October 19, 1987, which became known as Black Monday, the Dow Jones industrial average (an index of 30 major stock prices) dropped a record 508 points, sending the economy into a tailspin. Greenspan moved quickly to avoid the Fed's mistakes made during the 1929 crash that led to the Great Depression. Although billions of dollars had been lost in the stock market, the greater issue was the panicky reaction of the largest economy, namely the banks. Greenspan flooded the market with money and pressured banks to continue to make loans despite the uncertain times. His quick and decisive actions were credited with a relatively speedy recovery of the economy.
Although not all his decisions have been popular or, in hindsight, correct, Greenspan has garnered the trust and admiration of the nation. As Bob Woodward wrote in Maestro: Greenspan's Fed and the American Boom, "Although his words are almost unbearably opaque, he appears to be doing something very rare—telling the truth. The very act of thinking, the strain in his wrinkled forehead, can be seen in the video footage of him before a microphone. At times it seems painful. But the public has rewarded his caution, reflection, and results with their confidence. That he is the unelected steward of the economy is simply accepted." ABC.com's Newsmakers quotes former Representative Frank Ikard of Texas referring to Greenspan: "He is the kind of person who knows how many thousands of flat–headed bots were used in a Chevrolet and what it would do to the national economy if you took out three of them." When his renomination was announced in 1996, Fortune commissioned a poll that showed a 96 percent approval rating among the nations top 1,000 executives.
Throughout his career as Fed chair, Greenspan has been a staunch opponent of inflation. He is prone to make small changes rather than dramatic moves, and he is cautious in making statements both of optimism and pessimism regarding the future of the economy. He has seen the U.S. economy through both difficult and prosperous times. However, his lasting legend may be how well he is able to control the recessive economy of the last three years of his term. In 2001, he lowered the interest rate no less than nine times, bringing it to its lowest point since 1960. On October 22, 2001, Newsweek ran an article titled "Can Alan Save the Day Again? Probably Not," suggesting that the public and Wall Street both have overestimated Greenspan's power to control the economy. The article's author, Robert Samuelson, noted, "The point is that even zero interest rates can't reinvigorate the economy if other conditions are sufficiently unhealthy."
The significant slowdown in the American economy during 2001 caused some loss of admiration for Greenspan, whom some blame for not lowering interest rates soon enough or fast enough to jump–start the economy. After the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, consumer confidence plunged further, and an estimated $1 trillion of wealth was destroyed by the collapse of the stock market in the wake of the attacks. If Greenspan succeeds in averting an all–out recession, he will most definitely find a permanent place among the nation's heroes. As Rob Norton of Fortune wrote in 1996, "He will be remembered not only as the best Fed chairman ever but perhaps as the preeminent central banker of the age."
Sources of Information
Contact at: Federal Reserve Board
20th and C Streets, NW
Washington, DC 20551
Business Phone: (202)452–3215
"Alan Greenspan: Chairman of the Federal Reserve Board." ABC Newsmakers, 1997. Available at http://www.abc.com.
Beckner, Steven K. Back From the Brink: The Greenspan Years. New York: John Wiley & Sons, 1996.
Fox, Justin. "Did He Blow It? We've Long Cursed Deities for our Suffering—Alan Greenspan is No Exception." Fortune, 2 April 2001.
Martin, Justin. Greenspan: The Man Behind the Money. Cambridge, MA: Perseus Publishing, 2000.
Miller, Rich, and Laura Cohn. "Even 'Free Money' May Not Do the Trick." Business Week, 8 October 2001.
Norton, Rob. "In Greenspan We Trust." Fortune, 18 March 1996.
Samuelson, Robert J. "Can Alan Save the Day Again? Probably Not." Newsweek, 22 October 2001.
Woodward, Bob. Maestro: Greenspan's Fed and the American Boom. New York: Simon & Schuster, 2000.
Appointed chairman of the nation's central bank just two months before the stock market crash of 1987, American economist Alan Greenspan (born 1926) acted quickly to avert a general financial collapse.
Alan Greenspan was born in New York City on March 6, 1926, to Herman H. and Rose G. Greenspan. His Bachelor's (1948), Master's (1950), and Ph.D. (1977) degrees in economics were all earned at New York University. For three decades, 1954-1974 and 1977-1987, he was chairman and president of an economic consulting firm in New York City, Townsend-Greenspan & Co., Inc. His distinguished record during this time is reflected by his elections as chairman of the Conference of Business Economists, president of the National Association of Business Economists, and director of the National Economists Club.
His career in the private sector was interrupted by calls to public service, first as chairman of President Ford's Council of Economic Advisors (1974-1977), then as chairman of President Reagan's Commission on Social Security Reform (1981-1983), as well as several other presidential boards and commissions. These included President Reagan's Economic Policy Advisory Board, and a consultant to the Congressional Budget Office.
Career With the Federal Reserve System
Greenspan assumed his most important public position on August 11, 1987, replacing Paul A. Volcker as chairman of the Board of Governors of the Federal Reserve System (the Fed). The Fed seeks to control the creation of money and to influence key interest rates, thereby controlling fluctuations in prices of financial market assets, such as stocks and bonds. Perhaps most important among the Fed's responsibilities is to provide temporary loans (through the so-called "discount window") to banks and other financial institutions in times of need. This "lender of last resort" function was the primary reason the Fed was created by Congress in 1913, since individual bank failure had often spread to other banks, leading to a general financial market collapse.
Less than two months after assuming office, Greenspan was faced with such a financial market crisis. After peaking at 2,722 in August of 1987, the Dow Jones industrial average (an index of 30 major industrial stock prices) floated downward by 17 percent over the next month and a half. Suddenly, on "Black Monday," October 19, the market collapsed by more than 500 points as terrified sellers dumped millions of shares. Falling stock prices automatically triggered millions of additional sale orders owing to computerized program trading. Buyers that had previously bought stocks "on margin"—borrowing some portion of the purchase price using the stock as collateral—were then subject to margin calls and forced to provide additional collateral when these stock prices fell. Many of these stock holders were thus also forced to sell.
What consequently resulted was the largest one-day drop in stock prices in U.S. history, with over 20 percent of the New York Stock Exchange wealth evaporating overnight. The securities firms (brokerage firms and dealer-brokers) that as middlemen provide for orderly trading in stocks on the New York Exchange were hard-pressed to find operating capital as Black Monday wore on, particularly when major domestic and foreign banks withdrew their loans as the alarm spread. The financial system neared collapse from a lack of ready cash (a "liquidity" crisis). Many other financial institutions would have faced insolvency had the market continued to drop the following day.
Acting quickly, Greenspan met with top Fed officials and mapped a strategy for easing the cash crunch, using the Fed's virtually unlimited reserves to bolster the troubled financial institutions. Before the market opened on Tuesday, October 20, Greenspan announced the Fed's "readiness to serve as a source of liquidity to support the economic and financial systems." With the full force and power of the Fed backing these institutions, fear of a general collapse receded and the Dow-Jones industrial average rebounded with a rally of over 100 points on that day.
Incidentally, the bull market of the "Roaring Twenties" had collapsed on October 29, 1929, with again the Fed, acting through the New York Regional Federal Reserve Bank, providing needed short-term liquidity to stop the financial panic from spreading to other sectors of the economy. In contrast to 1987, however, the Crash of 1929 foretold and contributed to a long-term economy-wide collapse. This was partially due to infighting over monetary policy at the Fed, which allowed the money supply to fall by a third over the period from 1929-1933 and which contributed to banking panics that led more than a fifth of the nation's banks to suspend operation.
Yet Greenspan's worries were far from over. On the inflation front, he found cause for considerable alarm. The federal budget deficit had swollen to $221 billion by 1986 and was exerting a powerful inflationary effect on the macroeconomy. While the deficit stabilized at around $150 billion for the remainder of the decade, the collapse of many federally-insured savings and loan institutions was obligating the government to pay out many hundreds of billions of dollars more in the future. The overall effect was to raise interest rates, thereby supplanting spending for capital investment in the private sector. Thus future supply productivity might be hampered at the very time demand was increasing.
Reappointed Despite Differences
Having weathered the financial market panic of 1987, Greenspan sought to send a clear signal that the fight against inflation was now his top priority. This meant slowing the growth of financial reserves that add to the money supply, which, when spent, put upward pressure on prices. Thus the Fed is faced with the dubious task of fighting unemployment (by expanding reserves) and simultaneously fighting inflation. His four-year term as chairman expired in 1991. However, President Bush announced that he would reappoint Greenspan to another term, although the recession caused tension between them.
In 1996, Clinton also reappointed him, despite different financial policies. Greenspan has been criticized for raising interest rates at the first sign of inflation even when the economy has been slow and unemployment high, whereas Clinton believed in strong economic growth, even if it meant a small rise in inflation. Since interest rate hikes mean fewer businesses take out loans to expand, and therefore fewer jobs, the 1996 reappointment surprised many. On April 6, 1997 Greenspan married NBC reporter Andrea Mitchell.
He had also served previously as a member of TIME magazine's Board of Economists and senior advisor to the Brookings Institution Panel on Economic Activity. In addition, Greenspan served as corporate director to numerous banks and manufacturing companies, including J. P. Morgan (the nation's fourth-largest commercial bank) and Alcoa (the nation's largest aluminum company). His honorary degrees were numerous, including those from Wake Forest, Colgate, Hofstra, and Pace, and he was the joint recipient with Arthur Burns (a Fed chairman in the 1970s) and William Simon (a former treasury secretary) of the Thomas Jefferson Award for the Greatest Public Service Performed by an appointed official, presented by the American Institute for Public Service (1976).
General discussion of the Fed's operating procedures are outlined in U.S. Board of Governors, The Federal Reserve System: Purposes and Functions. For an inside look at the workings of the Fed, see William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (1987). Greenspan's views on inflation are given in Weapons Against Inflation (1979). As Greenspan is always making new decisions regarding interest rates, there are numerous articles to be found in periodicals such as Business Week and Money. For a good comprehensive work on his career, see Robert Sherrill "The Inflation of Alan Greenspan", The Nation (March 11, 1996). For a brief look at the differences in the philosophies of Greenspan and Clinton, see Owen Ullmann "Clinton and Greenspan: Is an Explosion Coming?", Business Week (June 6, 1994).
Fascinating discussions of the Crash of 1987 are found in" Terrible Tuesday: How the Stock Market Almost Disintegrated a Day After the Crash," Wall Street Journal (November 20, 1987) and Frederic S. Mishkin, Money, Banking, and Financial Markets (1989). The most famous monetary scholars of the Great Depression are Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (1963), but for a more readable classic account, see John Kenneth Galbraith, The Great Crash, 1929 (1955). □
Alan Greenspan (1926–), chairman of the Federal Reserve Board since 1987, has sometimes been described as the second most powerful person in the
world. Greenspan's slightest utterance could directly affect the lives of millions of citizens and could alter the monetary policies of governments on six continents. His tenure at the Federal Reserve has been marked by low unemployment, near-zero inflation, a strong dollar, and unprecedented prosperity.
The only child of divorced parents, Greenspan was born and raised in New York City where he attended public schools. He enrolled in the prestigious Juilliard School of Music but, after a year he left to play tenor saxophone and clarinet on the road with Henry Jerome's swing band.
Toward the end of World War II (1939–1945), he entered New York University where he received a Bachelor of Arts in economics in 1948 and a Master's in economics in 1950. He studied for a doctoral degree at Columbia University but left in 1953 before completing work on it. (In 1977, based on his impressive career as an economist, New York University awarded him a Ph.D. in economics without a formal dissertation.) At Columbia he became close friends with economist Arthur Burns, who later became Chairman of the Federal Reserve Board from 1970–1978.
In the early 1950s he came under the intellectual influence of novelist Ayn Rand, the author of The Fountainhead. Gloria Borger in U.S. News and World Report reported that Greenspan said of Rand, "What she did was to make me see that capitalism is not only efficient and practical, but also moral." With this view in mind Greenspan virtually invented the business of providing economic analyses specifically for senior business executives. He and William Townsend founded the economic consulting firm of Townsend-Greenspan & Co., Inc. which provided industrial and financial institutions with forecasts and other business-related services. The firm was immediately successful and Greenspan became a wealthy man. He was soon in demand as a forecaster and adviser and was named to the boards of such prestigious companies as Alcoa, Capital Cities/ABC, J.P. Morgan & Co., and Mobil Corporation.
In 1968 Greenspan was recruited to serve as an adviser to then presidential candidate Richard Nixon (1969–1974). In 1974 Greenspan's friend, Arthur Burns, urged him to serve as chairman of the Council of Economic Advisors. Burns felt it was Greenspan's "patriotic duty" to combat the inflation was threatening capitalism. Greenspan accepted the position and began his battle against inflation on September 1, 1974. For the next three years, under his leadership, the rate of inflation dropped from eleven percent to six-and-a-half percent. Ten years later, then Treasury Secretary James Baker (1985–1988) nominated Greenspan to the chairmanship of the Federal Reserve. Little wonder Greenspan was the only nominee for the position.
The Federal Reserve system ("the Fed") is a complex organization of independent parts. It is made up of twelve regional Federal Reserve banks, each with a president, board of directors, officers, and research staff. In Washington DC, a board of governors also maintains a staff of top economists. Chairman Greenspan exercised strong and effective leadership of the Fed. Greenspan's personal charm and his mastery of data helped secure his position as undisputed chief.
Greenspan's steady hand calmed uncertain domestic and global economic markets. From 1989 to 1992 he tightened lending practices but also injected cash into the U.S. economy to ensure recovery from the post–Cold War economic downturn. He also refused to inflate the money supply in reaction to a temporary worldwide price hike for oil; thus price stability remained. By 1992 the economy was on an upward trend. In 1994 Greenspan raised interest rates several times in a successful effort to thwart possible inflation. The ultimate result, despite what critics warned, was a very low 4.7 percent unemployment rate. Over the next few years the Fed gradually decreased the prime lending rate. As a result, the economy boomed at an historic pace, the federal budget balanced, and the nation's inflation rate fell below two percent.
By the accounts of his contemporaries, Greenspan was considered the best chairman the Federal Reserve Board had ever seen. In 1998 a Louis Harris survey of 400 senior executives gave Greenspan a favorable rating of 97 percent. Economists at all points along the theoretical spectrum awarded him high marks. The 1990s, as a period marked by peace and prosperity in the United States, could easily be called the Age of Greenspan.
Borger, Gloria. "The politician-economist: walking the fine line between the public White House and the private Fed, Chairman Alan Greenspan looks to the numbers for answers." U.S. News and World Report, July 1, 1991.
Foust, Dean. "Alan Greenspan's Brave New World." Business Week, July 4, 1997.
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Norton, Rob. "In Greenspan We Trust." Fortune, March 18, 1996.
Who's Who in America,1988–1989. New Providence, NJ: Marquis Who's Who, 1989, s.v. "Alan Greenspan."
GREENSPAN, ALAN (1926– ), U.S. economist. Born in New York City, Greenspan received a B.S. in economics (summa cum laude) in 1948, an M.A. in economics in 1950, and a Ph.D. in economics in 1977, all from New York University. For many years Greenspan headed an independent economic consulting firm in New York, mainly for major corporations and institutions, including the United States Tresury and the Board of Governors of the Feeral Reserve System. He also served as a senior adviser to the Brookings Institution Panel on Economic Activity. In 1974 he was appointed by President Nixon to succeed Herbert Stein as chairman of the President's Council of Economic Advisers. He was chairman of the National Commission on Social Security Reform from 1981 to 1983. He also served as a member of President Reagan's Economic Policy Advisory Board, a member of Time magazine's Board of Economists, and a consultant to the Congressional Budget Office. Greenspan was known for his conservative economic views, which he developed partly under the influence of Ayn Rand.
[Joachim O. Ronall]
Greenspan also 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.
In 1987 he was nominated to the position of chairman of the Federal Reserve Board. Given the U.S.'s large budget deficit, which prevented the presidential and legislative arms of the administration from effectively utilizing tax and spending policies to influence the economy, this made him the most important economic policy-maker in the government, since he was able to exert a considerable influence over interest rates by controlling the money supply. Declaring his intention to "try to maintain the maximum sustainable long-term economic growth that is possible," he presided over a period of slow but steady economic growth until the summer of 1990, at which time recession hit the American economy. Despite critics' complaints that he first retarded economic expansion by keeping interest rates too high and then moved too slowly to end the recession, he was nominated to a second term by President George Bush in August 1991, and shortly thereafter he was also confirmed to his first full fourteen-year term on the Federal Reserve Board. In 1996 his third four-year term was confirmed. In 2004 he took office for a fifth term.
Greenspan also served as chairman of the Conference of Business Economists; president and fellow of the National Association of Business Economists; and director of the National Economists Club.
He received the Thomas Jefferson Award for the greatest public service performed by an elected or appointed official, presented by the American Institute for Public Service (1976); was elected a fellow of the American Statistical Association (1989); was decorated Legion of Honor (Commander) France (2000); was made honorary Knight Commander of the British Empire (2002); and was the first recipient of the Gerald R. Ford Medal for Distinguished Public Service (2003).
Among Greenspan's publications are Income Inequality: Issues and Policy Options (1998), Changing Capital Markets: Implications for Monetary Policy (2001), and Achieving Price Stability (2001).
[Rohan Saxena and
Ruth Beloff (2nd ed.)]
B. Woodward, Maestro: Greenspan's Fed and the American Boom (2000); J. Martin, Greenspan: The Man behind Money (2000); D. Jones, The Politics of Money: The Fed under Alan Greenspan (1991).