Celebrating Alan Greenspan: Reflections on the maestro

Recently, the press and public have focused a good deal of attention on the current Chair and the likely new Chair of the Federal Reserve Board.

And given the Fed's importance to the United States and global economies, this interest is not surprising.

Less attention has been paid recently to another Fed Chair, Alan Greenspan, who is celebrating his 100th birthday today.

During his eighteen-year tenure as Fed Chair, serving under four Presidents (Ronald Reagan, George H. W. Bush, Bill Clinton, and George W. Bush), Alan Greenspan became the “Maestro” of the US economy.

During Greenspan's tenure, the US economy grew at an average GDP rate of about 3.2%, while inflation stayed at about 2.5% and the US added 34 million jobs (an average of 1.8 million jobs per year).

This enviable record occurred despite the challenges of (i) the 1987 stock market crash (when the market lost 23% of its value in one day); (ii) the Long-Term Capital Management crisis; (iii) the 1990 recession; (iv) the Gulf War oil shock; (v) the savings and loan banking crisis; (vi) the dotcom bubble burst; (vii) the 9/11 attacks; and (viii) the institutional challenges from the Russian debt default, the Mexican peso collapse and bailout, and the Asian currency crises.

Of course, Alan Greenspan did not deal with all of these crises alone – he had a full complement of board members, the presidents of the regional Fed banks, and a highly competent and experienced Federal Reserve staff.

But Greenspan made the real difference – his intellect, experience, calm, and credibility (with the markets and within the Executive and Legislative branches) put him in a unique position to confront these myriad challenges while keeping the economic and financial damage comparatively modest.

To be sure, Alan Greenspan had his critics. He was less transparent about his thinking and likely actions than many would have preferred, and after he left the Fed, some argued that his decision to keep interest rates relatively low for an extended period contributed to the subprime mortgage crisis and the Great Recession. In my view, that blame was largely misplaced.

Over his eighteen-year tenure, the markets and the US economy benefited enormously: GDP rose from roughly $5 trillion to about $14 trillion, unemployment fell to its lowest level in three decades, and productivity increased on the order of 40%. Greenspan was also one of the few public officials at the time who clearly recognized that rising productivity was central to America’s economic strength and who believed it should be nurtured and expanded.

When the Great Recession hit after his retirement, critics argued that by keeping interest rates too low and failing to regulate financial institutions more aggressively, he had set the stage for the crisis. I have always seen that as an effort to find a convenient scapegoat. Greenspan was hardly perfect, and no Fed Chair can anticipate or prevent every future problem. But over eighteen years, he demonstrated how a central bank can help guide a complex modern economy and why the Fed’s capabilities and independence remain the envy of the world.

When Alan Greenspan left the Fed, he gave a series of talks – some in interview format. The demand to attend these private events was overwhelming because Greenspan had largely avoided these events during his entire Fed tenure.

Pacharbor Capital Group was fortunate that Alan Greenspan did a number of events for our firm in the United States and abroad. And in front of Pacharbor Capital Group investors, I had an opportunity to interview the Maestro for the first time.

I could see clearly how he had managed to help lead the global economy as well as anyone could have done. He was an encyclopedia of knowledge about the United States and global economies. He was quick-witted and self-deprecating. He was pleasant, knowledgeable, and perceptive.

I could see firsthand why so many Presidents, Secretaries of the Treasury, global central bankers, and Wall Street leaders had so much respect for this quiet, soft-spoken economist who gave so much to the Fed and to his country for eighteen years. We could have chosen someone different, sure, but it is hard to imagine we could have chosen someone better.

Happy 100th birthday to Alan Greenspan. Thank you for your service to our country and to the world.