Who is Alan Greenspan?
Alan Greenspan is an American economist who chaired the Board of Governors of the Federal Reserve from 1987 until 2006. During his tenure, he also led the Federal Open Market Committee (FOMC), influencing key monetary policy decisions on interest rates and the U.S. money supply.
Navigating the Great Moderation
Greenspan is recognized for overseeing the “Great Moderation,” a period of reduced inflation and stable macroeconomic growth from the mid-1980s until the 2007 financial crisis. However, the expansionary monetary policy and “easy money” approach during these years are also believed to have contributed to economic bubbles, including the 2000 dot-com bubble and the 2008 financial crisis.
Key Takeaways
- Alan Greenspan, an American economist, led the Federal Reserve from 1987 to 2006.
- His leadership saw the Great Moderation, characterized by low inflation and steady growth.
- Critics argue his policies inflated asset bubbles, impacting the 2000 and 2008 financial crises.
- He is known for his hawkish stance on inflation and an ability to navigate crises such as the 1987 stock market crash.
- Throughout his career, Greenspan received accolades, such as the Presidential Medal of Freedom from George W. Bush.
From New York to the Federal Reserve: Early Life and Education
Born on March 6, 1926, in New York City, Greenspan earned his bachelor’s, master’s, and doctoral degrees in economics from New York University and studied further at Columbia University. Early in his career, he worked for a non-profit and later formed his own economic consulting firm, Townsend-Greenspan & Co., Inc.
A Public Service and Controversial Policies
Greenspan began his public service career in 1974 as chair of the Council of Economic Advisers under President Gerald Ford. In 1987, President Ronald Reagan appointed him as the chair of the Federal Reserve. Greenspan not only managed the aftermath of the 1987 stock market crash by advocating for lowered interest rates but also maintained this stance through crises like the bursting of the dot-com bubble and the 9/11 attacks.
Views on Inflation
While he initially favored a return to the gold standard in his early writings, Greenspan shifted towards flexible policies adaptable to the condition of the economy. He eventually led a more dovish inflation approach during his time at the Federal Reserve.
Adjusting Interest Rates
Greenspan’s tenure was marked by significant interest rate cuts, particularly after economic downturns. Critics believe these cuts contributed to asset bubbles like the housing market crash, which played pivotal roles in financial crises.
Controversial Advocacy for Adjustable-Rate Mortgages
In 2004, he proposed homeowners consider adjustable-rate mortgages (ARMs). As rates rose and these mortgages reset, many homeowners faced higher payments, worsening the financial crisis.
The Greenspan Put: An Era of Risk-taking
Greenspan’s approach influenced the so-called “Greenspan put,” where aggressive lowering of interest rates created a moral hazard, encouraging excessive risk-taking by investors who anticipated inevitable Federal Reserve support during downturns.
Tenure Conclusion: The End of an Era
Alan Greenspan served as Chair of the Federal Reserve for five terms, concluding in 2006 when Ben Bernanke succeeded him. His policy decisions, crises management, and long-term economic impacts remain subjects of debate.
Personal Life and Current Work
He married journalist Andrea Mitchell in 1997 and currently operates Greenspan Associates LLC.
Final Thoughts on Greenspan’s Legacy
Alan Greenspan remains a polarizing figure whose tenure saw both significant economic achievements and crises. His policies have left lasting imprints on monetary policy and financial stability debates.
Related Terms: Federal Open Market Committee, inflation, interest rates, subprime mortgage financial crisis, Great Recession.
References
- Federal Reserve History. “Alan Greenspan”.
- Alan Greenspan. “Gold and Economic Freedom”.
- Federal Reserve Board. “1998 Remarks by Chairman Alan Greenspan”.
- Federal Reserve Economic Data. “Effective Federal Funds Rate”.
- Mario Rojas Miranda. The Debate over the Origin of the Great Recession in the United States, Pages 79-103. Norteamérica, Volume 12, Issue 1, 2017.
- Federal Reserve Board. “Remarks by Chairman Alan Greenspan”.
- Marcus Miller, Paul Weller, Lei Zhang. Moral Hazard and The US Stock Market: Analysing the ‘Greenspan Put’, Pages 171–186. The Economic Journal, Volume 112, Issue 478, 2002.
- Sandeep Dahiya, Bardia Kamrad, Valerio Potì, and Akhtar R. Siddique. “The Greenspan Put”.
