Alan Greenspan

Eclectic Talents, Diverse Careers. Born in New York City on 6 March 1926, the son of a stockbroker and a retail salesclerk, Alan Greenspan early displayed impressive mathematical skills. In fact, many considered him something of a mathematical prodigy. After finishing high school, however, Greenspan enrolled in The Juilliard School and played saxophone and clarinet with a touring swing band during the 1940s. In 1945 Greenspan's musical career came to an end when he enrolled in New York University to study economics. He completed a B.A. in 1948, graduating summa cum laude, and earned an M.A. in 1950. He then entered the doctoral program at Columbia University. In the early 1950s Greenspan dropped out of Columbia and went to work for the National Industrial Conference Board (NICB). In 1977 NYU conferred his Ph.D. without requiring Greenspan to complete a dissertation. After leaving the NICB in 1954, Greenspan and bond-trader William Townsend founded Townsend-Greenspan & Company, Inc., a consulting firm that offered economic forecasts to corporations and banks. He served as chairman and president of Townsend-Greenspan between 1954 and 1977, and again between 1977 and 1987, before dissolving the partnership upon his appointment as chairman of the Federal Reserve Board (the Fed).

Dollars and Sense. As chairman of the Fed, Greenspan displayed a rare combination of intellectual acumen and political savvy. He is an erudite economist with a remarkable sensitivity to the shifting political currents. Such characteristics enabled him to serve as chairman under four different administrations: those of presidents Ronald Reagan, George H. W. Bush, Bill Clinton, and George W. Bush. Greenspan got his first taste of public life as director of policy research for Richard M. Nixon's presidential campaign in 1968. President Gerald R. Ford appointed Greenspan chairman of his Council of Economic Advisors, on which he served from 1974 until 1977. Out of politics between 1977 and 1987, Greenspan returned to Washington when Reagan nominated him as the chairman of the Federal Reserve Board, a position he has held ever since.

Greenspan at the Fed. In October 1987, two months after he took office, the stock market crashed. Greenspan took quick and decisive action. A child during the Great Depression, Greenspan got the Fed to pump money into the banking system, thereby avoiding the liquidity trap that magnified the problems of the market in 1929. In so doing, he helped to avert a worse crisis on Wall Street. Given Greenspan's fiscal conservatism and comments about the "irrational exuberance" of the market, it is likely that he interpreted the events of October 1987 as a logical and necessary consequence of a steep and unwarranted rise in stock prices, which took place without due consideration of the true strength of the U.S. economy. Since his earliest days at the Fed, Greenspan has been obsessed with balancing the economy between the cycles of boom and bust. In his first years as chairman, Greenspan raised interest rates with great frequency in an effort to keep inflation to a minimum. He raised rates in 1989 and 1990, easing off slightly during the Gulf War and the recession of 1990-1992. In 1994, the most controversial period of Greenspan's tenure, he raised interest rates six times in order to quell rapid economic growth that he saw as inflationary. Those who were at the Fed remember it as a period of triumph. Alan Blinder, vice chairman of the Federal Reserve Board through 1996, called this period "the most successful episode of monetary policy in the history of the Fed," and other analysts in the financial community were equally free with their accolades. Those in the business community and labor movement, however, saw the increases as reflecting Greenspan's ideological bias toward low inflation even at the cost of higher unemployment and economic contraction. They maintained that the economy could grow at a faster rate than the Fed allowed without sparking inflationary pressures. Greenspan's tight money policies, his critics argued, kept profits down, wages stagnant, and economic expansion paralyzed.

Pragmatism Triumphs at the Fed. To nearly everyone's surprise, during the second half of the decade, Greenspan showed a remarkable lack of dogmatism in setting policy at the Fed. In 1998 and 1999 he became a great advocate of the so-called New Economy, raising interest rates just once. That increase was almost pro forma, a signal to the markets that he was still watching. In his public speeches, Greenspan also increasingly suggested that improvements in productivity and technology have made American business more efficient, thus lowering inflationary pressures and enabling the economy to grow without generating higher prices and wages. Uncharacteristically, Greenspan dismissed official productivity figures as too low, insisting that the difficulties of measuring productivity in a service economy concealed the real gains U.S. business has reaped since 1994. As a result, during the 1990s Greenspan proved more willing to allow the economy to grow without raising interest rates as a hedge against inflation.

Greenspan faced some of his toughest challenges as Fed chair during 2001, as the economy abruptly slowed and the September 11 terrorist attacks further frightened investors. Over the course of the year Greenspan slashed interest rates from 6.5 percent to 1.75 percent, hoping to spur economic growth, but other experts began to second-guess his decisions and to wonder if deflation was inevitable. In 2002 Greenspan cut interest rates again, to a record-low 1.25 percent. Yet he kept his faith in the power of productivity increases to drive economic expansion and maintained that the economy would turn around. By 2004, it had, and Greenspan was once again in the position of increasing interest rates rather than cutting them.

On June 19, 2004, Greenspan began an unprecedented fifth term as chair of the Federal Reserve. He was re-nominated by President George W. Bush and confirmed unanimously by the Senate. In February of 2005, Greenspan said U.S. interest rates are still "fairly low" after six straight increases, and that despite a good economy, fiscal discipline is essential. He continued to act swiftly to correct minor fluctuations in the economy before they spread into larger crises. However, not everyone praised him. Some observers accused him of slavishly following the wishes of the Bush administration, and in his 2006 book Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars, Peter Hartcher blamed Greenspan for the stock market crash of 2001, noting that the Fed chairman should have taken more action to deflate the excessive enthusiasm in the stock and housing markets that led to the crash.

In 2005, Greenspan was announced as a 2005 Presidential Medal of Freedom recipient by U.S. President George W. Bush; it is the highest civil award in the United States. Treasury. His term ended on January 31, 2006; he was succeeded by Ben Bernanke, who told Michael Wallace in Business Week Online, "One may aspire to succeed Chairman Greenspan, but it will not be possible to replace him." Since leaving his position as chairman, Greenspan has worked as a private advisor, consulting for corporations through his own company, Greenspan Associates LLC. He is working on a memoir.


"The Second Most Powerful Man in America." Alan Greenspan was not elected to his office, but during his long tenure as the 13th Chairman of the Board of Governors of the Federal Reserve from 1987 to 2006, he commanded a constituency larger than that of any politician. As chairman of the Federal Reserve Board (the "Fed"), this bespectacled, owlish economist was granted control of U.S. monetary policy, and in so doing, came to wield a power that stretched well beyond any political or geographic border. If his message, like his countenance, became morose, stock markets tumbled and the value of the dollar overseas sunk; if his attitude became upbeat, markets rallied to new record highs, consumers felt a sense of confidence in buying new products, and a sense of economic well-being descended to pacify investors, mortgage payers, and Wall Street brokers. George P. Brockway commented in the New Leader in 1995 that Greenspan was "as entitled as his predecessor to be called "the second most powerful man in America."

Predecessor Left Big Shoes to Fill. President Ronald Reagan appointed Greenspan as the U.S. top banker in 1987, replacing Paul Volcker, whose imposing physical presence--he was 6'7"--and anti-inflation zeal were legendary. Admitting to Time magazine in 1987 that it would be a "major challenge to fill Volcker's shoes," the smaller, quieter Greenspan took the helm of the Fed, amid concerns that the new Mr. Dollar would not be as hawkish on inflation as his predecessor had been.

Two-Term Appointee. Greenspan was reappointed to a second term in 1991 by President George Bush, even though a recession in the economy caused friction between them. The New York Times explained, "Bush officials wanted Mr. Greenspan to move more quickly to stimulate the economy through lower interest rates, and the President let the chairman dangle in uncertainty for several months before reappointing him." Still, many critics agreed with the Washington Post, which said the first term of the conservative chairman was "marked by outstanding performance."

Clinton Administration. Greenspan began his first term working with a Democratic president in 1992 when the Clinton Administration took the helm. As expected, the Democrats often criticized Greenspan's tight monetary policy. However, there was less friction with the Clinton Administration than there was with the Bush Administration, largely because Greenspan often supported Clinton. He backed the president to the point of agreeing with one of Clinton's campaign issues on middle class wages. When Clinton reappointed Greenspan for a third term in February 1996, he said Greenspan "has inspired confidence, and for good reason."

Tenure Free From Criticism. Greenspan's tenure was largely free of criticism even in the midst of a recession, primarily because economists admit that many factors affecting the long-term economy, most notably fiscal policy, are well beyond the control of the Fed. He also eluded most of the naysayers' barbs because while he knew well how to play the political game, he avoided the image of a policy maker who succumbs to political pressure or presidential bullying. Fortune magazine remarked, "Greenspan, in fact, has run the Fed apolitically and done a better job than nearly all his predecessors." His intellectual integrity is said to prevail over partisan scraps.

Federal Reserve Board. Greenspan became head of the Federal Reserve Board, an institution that was created by Congress in 1913 to manage the nation's money supply, centralize and strengthen the regulation of banks, and provide a flexible currency for a country that was trying to wean itself off the gold standard. The United States was one of the last industrialized countries to establish a central bank; other central banks include the Bank of England, the Banque de France, and the Bank of Canada. In subsequent years, the power of the Fed was expanded to cover such financial issues as margin requirements, the minimum amount of cash that must be put down when a security is bought.

How To Drive the Economy. Greenspan became the powerful chairman of a presidentially-appointed Board of Governors, which sets policy for Federal Reserve district banks and helps determine the lending practices of all deposit-taking institutions throughout the country. There are three basic tools the Fed uses to drive the economy, the most important of which is what is called open-market operations. If Greenspan believed the country was facing a credit crunch, he could lobby the Board to buy government securities from banks, thereby infusing the banks with cash which they could in turn lend to citizens who want to buy homes, cars, and other commodities. On the other hand, if Greenspan sensed a credit glut--that is, if banks were lending too much, which can drive up inflation--he could advise selling securities to banks, which would take money from the institutions and reduce lending. The Fed can also change the discount interest rate of its district branches, which lend money to banks. Lowering the rate encourages a bank to borrow from its district branch and allows that bank to pass the savings on to its customers in the form of lower interest rate loans. By raising the discount rate, the Fed discourages the bank from borrowing and lending. The Fed's third tool concerns reserve requirements, the amount of cash banks must keep on hand but cannot lend. If the Fed lowers the requirement, cash is freed up and banks can increase lending. If the requirement is raised, the banks must lock away more cash, thereby reducing the amount of money they have to lend.

Independent Agency. Although the board, including the chairman, is appointed by the country's reigning politician, it is an independent agency that does not answer to any elected official. The Fed finances itself, so economic pressure cannot be placed on it, and neither the president nor any member of Congress can compel the Board to act in a certain way.

From Music to Economics. Erudite economic theory was not the first love of Greenspan, who was born to divorced parents in New York City in 1926. He studied music at the prestigious Juilliard School, and afterward played tenor saxophone in the well-known Henry Jerome swing band. But his fascination with numbers was insuperable, and as New York's jazz golden age whirled about him, he managed the band's payroll and took time out to read college textbooks on banking. At 19, Greenspan put his musical instruments in their cases for good and began his study of economics at New York University. He did advanced graduate work at Columbia University under scholar and then-future Fed chairman Arthur F. Burns.

Influence of Ayn Rand. The free-market economic theories Greenspan would bring to government work years later were forged in the early 1950s, when he became a disciple of writer and social critic Ayn Rand. Greenspan found an intellectual ally in the conservative Rand, whose famous philosophical novels, Fountainhead and Atlas Shrugged, denounced government regulation and intervention, while stressing the importance of individualism. As a contributor to Rand's publication, the Objectivist, Greenspan wrote: "The welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of society."

First Political Appointment. In 1967, while running the successful economic consulting firm he had co-founded, Townsend-Greenspan & Co., Greenspan took his first step along the political trail, becoming presidential candidate Richard Nixon's director of domestic-policy research. Greenspan was named chairman of the President's Council of Economic Advisors in 1974, a month before Nixon resigned in disgrace following the Watergate scandal, and continued in that position in President Gerald Ford's administration. But while the economist was climbing the government ladder, the pragmatism and savvy that would later emerge as his defining features were still a few rungs beneath him. "Everyone was hurt by inflation," he said at a 1974 hearing. "If you want to examine percentagewise who was hurt most ... it was Wall Street Brokers." He later retracted the statement, having learned the political hazards of a free-spirited tongue. "Obviously, the poor are suffering more," he said.

Freelance Political Work. Greenspan continued with freelance political work after leaving the Ford administration. He advised such disparate politicians as Senator Edward Kennedy, George Bush, and Ronald Reagan on their presidential aspirations for the 1980 election. As chairman of the National Commission on Social Security Reform from 1981 to 1983, he was praised for fashioning a compromise plan to rescue the social security system from insolvency.

Initial Lack of Confidence in Greenspan. When President Reagan tapped Greenspan to become Fed chairman in 1987, several economists worried about his lack of international financing experience. They also feared that Greenspan would not be as aggressive in keeping down inflation--the prices of products--as his nearly mythic predecessor had been, even though Greenspan stated that he had a hard-line zero-inflation goal. It was not surprising that in response to Reagan's announcement that he had nominated Greenspan, the Dow Jones average of 30 industrial stocks on the New York Stock Exchange lost 22 points, and the dollar tumbled against foreign currencies. But the market and the dollar rebounded the following day, as economists and newspaper editorial writers, still slightly shocked at Volcker's imminent departure, came to grips with the succession.

Laissez-Faire Approach to Economy. The independence from partisan politics required of the chairman of the Federal Reserve played to Greenspan's strengths. Norman Jonas wrote in Business Week in 1987, "what drives him as an economist is his conviction that policy-makers must look beyond palliative actions that may please the public in the short run but hurt it in the long term." Being largely free from political pressure allowed Greenspan greater freedom in exercising his Rand-inspired laissez-faire philosophy, which favors letting economic conditions improve on their own without much government tinkering with monetary policy.

"A Free-Enterpriser." As an arch conservative, Greenspan also perceived a danger in relying on monetary policy adjustments to cure the country's economic woes. If interest rates were pushed too low, credit flooded into the economy and inflation could skyrocket. By raising interest rates to cut down on inflation, he faced the prospect of greater unemployment because business owners would not pursue the loans that enabled them to keep existing workers or hire new ones. Of his approach to monetary policy, Greenspan said in 1975, "I'm not a Keynesian. I'm not a monetarist. I'm a free-enterpriser."

Criticism and Praise. Some economists argued that Greenspan took that hands-off principle too far, that he did not act strongly enough when the economy was ailing. But the Fed chairman was praised for recognizing that many of the factors driving the U.S. economy have less to do with monetary policy and more to do with fiscal policy, which is largely the domain of the president and Congress. Greenspan said that changes in tax policy and decisions regarding the U.S. deficit will contribute to the long-term health of the economy far more than any monetary policy ever could.

Controlling Inflation. Greenspan's goal on entering office was to control inflation. His strong conviction may have stemmed from a reaction to recent history, when the Fed's main job in the 1980s was to control inflation brought about in the 1970s. In Greenspan's own words (from the New York Times), the Fed "went through the torture of the damned." Even at a time when inflation was well under control, at rates of less than three percent a year since 1992, Greenspan made it known that he would never let interest rates fall too quickly. Quoted in Money magazine in 1996, Greenspan warned, "Past successes will not count for much if we mistakenly let down our guard." Many economists believe that the rate of unemployment in the country and the price level of products are linked--as one goes up the other goes down. Therefore, Greenspan's strict anti-inflationary policy would imply that he expected a certain unemployment rate. However, in a speech to Congress on 19 July 1995, Greenspan seemed to hint that he refutes this presumption made by so many experts. He said, "I don't believe that any particular unemployment rate ... is something desirable in and of itself." Greenspan followed through on this statement during the economic boom of the late 1990s, keeping interest rates low even as unemployment dropped to previously unheard-of levels.

Obscured Statements. Experts rarely interpreted Greenspan's quotations with certainty. The Fed chief developed the belief that if he spoke too freely or too plainly on any government topic, there would be consequences. A misspoken word could give the appearance of partisan thinking, or harm the central bank's credibility or negatively impact Wall Street. Money magazine stated that Greenspan "has always been able to obscure the simplest thought with ambiguity and jargon." Greenspan himself said to the New York Times in June of 1995, "I spend a substantial amount of my time endeavoring to fend off questions, and worry terribly that I might end up being too clear." Nobel Laureate economist Milton Friedman believes that Greenspan has nothing to worry about. Barron's stated, "Friedman thinks that Federal Reserve Chairman Alan Greenspan's 'talk is lousy, but his performance has been very good.'"

Judging an Economy's Health. The Chairman of the Federal Reserve Board must analyze every detail and statistic of the economy to make decisions--even the most obscure statistics, like a weakness in yearly heavy truck orders. According to the New York Times, Greenspan said in 1994, "What we try to do is to create a body of information which gives us a sense of what the underlying forces driving the economy are." The New York Times commented, "This habit of analyzing everything from gold prices to retail sales does not sit well with monetarists, who believe he should focus on long-term growth of the money supply." Still, there is no doubt that Greenspan's many years as an economist provided him with the experience to judge the economy's health.

Politically Savvy Official. Despite his ability to withstand the political pressure of presidents, Alan Greenspan became known in Washington as one of the most politically savvy government officials. His ability to look beyond partisan infighting and galvanize compromise endeared him to both Democrats and Republicans. Robert S. Strauss, former chairman of the Democratic National Committee and the U.S. ambassador to Moscow, was quoted as saying in the New York Times in 1990, "Alan Greenspan is a great listener, and he exposes himself to people who know what's going on in this town, who are moving around the town, and he knows how to digest that information. His political antenna is always up. He's very sensitive to what's taking place politically on [Capitol] Hill, in the executive branch, in the media, and that's a tremendous strength for a person in his position."

Weathered Storms. Greenspan weathered many storms in his first years as Fed chairman. Reagan appointed him in June of 1987. In October of that same year, the stock market crashed. He was credited with keeping a cool head in showing restraint in monetary policy during that time and others. The Economist raved, "He has steered monetary policy skillfully through the 1987 stock-market crash, the banking and thrift crises of the late-1980s, the recession of the early 1990s and the subsequent recovery."

Ability to Achieve Consensus. Greenspan's ability to achieve consensus not only among rival political parties but also among governors on his board was well-documented. In 1990, speaking in scholarly rather than partisan terms, Greenspan was able to convince the Federal Reserve Board to lower bank reserve requirements, making $12 billion available for new loans to hurting Americans and helping the flogging financial industry by increasing yearly bank profits $1 billion. The vote was unanimous. In February of 1996, Business Week agreed on Greenspan's ability to achieve consensus: "Dissent has all but vanished at meetings of the 12-member Federal Open Market Committee, which sets short-term interest rates." The New York Times agreed that during the Clinton Administration, Greenspan "seems to move comfortably in both the Democratic and Republican camps, all without diverging from his avowed objectives." Greenspan proved to many that a low-key man can successfully lead a high-profile life. He also proved that a politically-minded economist can become one of the most influential non-politicians in the world.

Jump-Starting the Economy. Prior to Greenspan's 1991 reappointment, several political observers criticized President Bush for relying on Greenspan to jump-start the recessionary economy solely with monetary action. "Chairman Greenspan is actually President Bush's biggest economic asset," Paul A. Gigot remarked in the Wall Street Journal in 1991. "Yet having pushed Mr. Greenspan out to sea to steer the U.S. economy with only a single oar--monetary policy--the kibitzers in Congress and the White House are now telling him how to row."

Entering the Partisan Fray. Occasionally, Greenspan was accused of entering the partisan fray. Economist David M. Jones, quoted in Business Week, suggested that Greenspan had fueled the impression that he was influenced by political pressure when the Board cut the discount rate after the embarrassing Republican loss in Pennsylvania's 1991 special Senate election. The normally soft-spoken Greenspan also testified in Congress that he supported a reduction in the capital gains tax and an increase in consumption taxes--politically contentious issues in which, some say, the Fed chairman should not be meddling, because they go well beyond his role at the central bank. During the Clinton Administration, he lobbied Congress to support the President in bailing out Mexico. In 1995, he offered a plan to help cut the federal deficit by recalculating the inflation adjustments paid to Social Security pensioners. He made several comments during the Clinton Administration that showed his desire to see the Republicans and Democrats agree on a balanced budget for the country.

Takes on fourth and fifth terms. On April 6, 1997 Greenspan married NBC reporter Andrea Mitchell. In 2000, he accepted a nomination from Clinton for another four-year term, beginning June 2000. In 2002, with the U.S. economy under the George W. Bush administration facing serious problems, Greenspan told Congress that the prospect of a war against Iraq and the falling stock market had weakened investor confidence. In addition, he noted, corporate scandals had also done their part to weaken the economy. In response, Greenspan cut interest rates to a record low of 1.25 percent to, he hoped, stimulate economic growth. Given that U.S. productivity had continued to grow even during the downturn, Greenspan opined that in the long term, the U.S. economy would remain strong. The tactic worked, according to Greenspan; two years later, Greenspan warned investors that the economy was improving and gradually began increasing interest rates to prevent inflation. Bush approved of Greenspan's performance and nominated him for a fifth term as Fed chair. He was confirmed unanimously by the Senate on June 17, 2004. During this term, he continued his previous policy of acting swiftly to correct minor fluctuations in the economy before they spread into larger crises. Some observers accused him of slavishly following the wishes of the Bush administration, and in his 2006 book Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars, Peter Hartcher blamed Greenspan for the stock market crash of 2001, noting that the Fed chairman should have taken more action to deflate the excessive exuberance in the stock and housing markets that led to the crash.

Moves on to consulting. In 2005, Greenspan was announced as a 2005 Presidential Medal of Freedom recipient by U.S. President George W. Bush; it is the highest civil award in the United States. Treasury. His term ended on January 31, 2006; he was succeeded by Ben Bernanke, who told Michael Wallace in Business Week Online, "One may aspire to succeed Chairman Greenspan, but it will not be possible to replace him." Since leaving his position as chairman, Greenspan has worked as a private advisor, consulting for corporations through his own company, Greenspan Associates LLC. He is working on a memoir.