Chapter 16
When he was first approached in 1987 about the possibility of becoming Federal Reserve Board Chairman, Alan Greenspan did not want to take the job. As an economist working in New York, Greenspan preferred more mechanical types of economic analysis that drew on hard accounting principles. By contrast, Greenspan viewed the central task of the Federal Reserve—to make economic predictions—as a near impossible task. But he eventually accepted the position when President Reagan offered it to him, and Greenspan’s emphasis on low interest rates during his nearly nineteen years in the position helped make him the most renowned Fed chairman in history. It even earned him a share of credit for an economic recovery that stretched throughout the 1990s with inflation rates and interest rates near record lows.
In fact, Greenspan became such a respected figure that even a simple appearance by him before Congress became a market-shifting event. For example, immediately after President Clinton in 1993 unveiled his economic plan aimed at deficit reduction, Greenspan told the Senate Banking Committee that Clinton’s plan was both “serious” and “credible.” Within a week of that endorsement, long-term interest rates began to fall, much to the delight of Clinton administration officials. Aware of his impact, Greenspan took great care to avoid offering sound bites that might be misinterpreted in the media. Indeed, he was often accused of using “constructive ambiguity” to promote incomprehensibility (and no doubt a degree of mystery) about his own opinions.
Greenspan was a cult figure in Washington, D.C. in the 1980s and 1990s; yet like all such figures, the passage of time provides new perspectives on Greenspan’s tenure that is not all positive. In Congressional testimony he provided during the economic crisis of 2008, Greenspan acknowledged that he had been “partially wrong” in opposing the regulation of derivatives and lending institutions. Democratic members of Congress complained that by supporting President George W. Bush’s proposal to privatize social security, Greenspan showed he was less than independent. Nobel Award-winning economist (and New York Times columnist) Paul Krugman agreed, arguing that Greenspan’s support for Bush betrayed the trust normally placed in a Federal Reserve Chairman. Regardless, Greenspan’s legacy as a dominant figure in economic policymaking is not likely to be forgotten anytime soon.
Did the 2008-2009 recession fundamentally alter the role played by the modern Federal Reserve Chairman? Must he or she be a more active figure in the American political system today? Below, you will find information that helps us understand the modern Federal Reserve Board that Alan Greenspan shaped over two decades in historical, popular, and global perspectives.