So Long, Alan Greenspan, Sept 05 | Consistency Marks His Tenure as Chair of the Federal Reserve


As I was watching Alan Greenspan on television in July testifyingbefore Congress perhaps for the last time, I realized that his final monthswill be truly the end of an era.

Greenspan has been chair of the Federal Reserve (known as “the Fed”)since August 11, 1987, when Reagan was President. He has been there throughthe Presidencies of George H. W. Bush, Bill Clinton, and George W. Bush. Hisfifth and final term ends January 31, 2006. Next March 6, he will be 80 yearsold.

During his tenure, he has experienced the Crash of ’87, the recessionof the early 1990s, the dot com bubble, and the panic that followed the 9/11terrorist attacks.

Throughout the entire time, he has guided the Fed with a steady hand whilewearing his “Mr. Magoo” spectacles and dark pin-stripe suits andspeaking in the most impenetrable language imaginable.

Here’s a sample from his recent testimony before Congress: “Thedata released over the past two months or so accord with the view that theearlier soft readings on the economy were not presaging a more serious slowdownin the pace of activity.”

I read that sentence a few times and got the sense that the economy is allright. But in the next breath, Greenspan said that if the economy becomes betterthan the Fed thinks it should be, it could tighten: “In our view, realizingthis outcome will require the Federal Reserve to continue to remove monetaryaccommodation.”

During the turmoil of the last 18 years, Greenspan in his frequent appearancesand public actions has been remarkably consistent. Against that background,his steady performance has allowed his stature to take on mythic proportions.

In a series of interviews, National Public Radio asked people on the streetfor their opinions on such people in the news as Sandra Day O’Connor,Karl Rove, Bill Frist, Harry Reid, and Tony Blair. If the people knew who thesepersonalities were, they had only vague notions of what they did or their performance.

But when asked about Greenspan, they consistently made such remarks as “He’sdoing a great job.” This was despite the fact that few of them knew whatthe Federal Reserve is or what it does. Greenspan’s reputation is alsoremarkable in that he and the Fed primarily have only two comparatively crudetools available:

1. The money supply: When the Fed perceives that the economy is overheating,it can cool it off by contacting major money center banks and forcing themto buy treasury bills, notes, and bonds. This decreases the supply of cashavailable for borrowing. Similarly, when the economy needs stimulating, theFed calls those same banks and forces them to sell it treasury securities.

2. The Fed funds discount rate: This is the better-known tool. In this case,the Fed raises the rate it charges those major money center banks to borrowwhen the economy is overheating. When the Fed wants to stimulate the economy,it lowers the rate. It does this gradually, usually a quarter of a point (25 “basispoints” in economists’ lingo) at a time so as to keep the economyfrom lurching. The Fed’s watchwords are “even keel.”

Greenspan has his detractors, including Milton Friedman, Nobel laureate ineconomics. Friedman thinks that a computer can accomplish everything the Feddoes. At his 90th birthday party, I heard that Friedman repeated this assertionand said the computer should be placed in a wilderness along with only a manand a dog (the dog would keep the man from touching the computer—andthe man would be there to feed the dog).

Because the U.S. economy is the most formidable economy in the world, itsmovements have international repercussions. My former boss, the late John Knapp,claimed Greenspan was the most powerful person in the world. “When Greenspansneezes,” John would say, “entire third-world countries catch pneumonia.”

When promotional T-shirts came in, John wanted to issue ones that proclaimed, “Neverbet against the Fed!”

Other critics claim Greenspan has acted admirably during crises but done nothingat other times when he should. Some say the dot-com bubble was a result ofthe Fed’s over-aggressive policies and all that Greenspan did duringthat time was to warn Wall Street of “irrational exuberance.”

Shortly after that, Greenspan married NBC correspondent Andrea Mitchell, andthe Tonight Show’s Jay Leno warned the then 74-year-old Fed chair about “irrationalexuberance in the boudoir.”

Even I in my WSUI broadcasts have made fun of the Fed by calling them “theGreenspan gang” and referring to Greenspan as “Uncle Al.” Toparaphrase Kermit the Frog, it hasn’t been easy being Greenspan. So long,Uncle Al, it’s been good to know you.