Robert Samuelson: Greenspan's Brilliant Legacy
He is the dour optimist. Alan Greenspan, completing 18 years as chairman of the U.S. Federal Reserve Board and the world's most influential economic figure, flew here last week for a conference to celebrate and criticize his record. There wasn't much criticism.
Economists Alan Blinder (a former Fed vice chairman) and Ricardo Reis of Princeton concluded that Mr. Greenspan has a "legitimate claim to being the greatest central banker who ever lived." Economist Allan Meltzer of Carnegie Mellon University, author of an exhaustive history of the Fed, cited these figures: from 1987 -- when Mr. Greenspan arrived -- to 2004, the U.S. economy added 27 million jobs and raised per capita consumption by 44%. Over this period, there have been two brief recessions, those of 1990-91 and 2001, lasting a total of 16 months.
Of course, Mr. Greenspan didn't single-handedly expand the economy. He regards the free enterprise system -- its reliance on risk-taking, private markets and individual exertion -- as the bedrock of American prosperity. This faith feeds his optimism. And there is a second sense in which Mr. Greenspan has also disclaimed credit for good economic performance. From 1979 to 1987, inflation dropped from to 4.4% from 13.3% -- the work mainly of Mr. Greenspan's predecessor, Paul Volcker, backed by Reagan. Because high inflation is wildly destabilizing (four recessions from 1969 to 1982), this decline automatically fostered improvement.
Still, there were ample opportunities for deeper, longer slumps. Consider. Just after Mr. Greenspan's appointment, the stock market plunged 20% in one day. During the 1990-91 recession, the U.S. banking industry suffered more than at any time since the Great Depression; from 1989 to 1992, about 500 banks went out of business, recalls economist David Hale of Hale Advisers. The 1997-98 Asian financial crisis was arguably the worst threat to the global economy since World War II. One side effect -- the near bankruptcy of hedge fund Long-Term Capital Management -- caused many frightened bond buyers to stop investing. And then there was the "popping" of the stock market bubble in 2000; shareholders lost $8 trillion in paper wealth.
Yet, no potential calamity became an actual calamity -- and for this, Mr. Greenspan deserves much credit....
Read entire article at WSJ
Economists Alan Blinder (a former Fed vice chairman) and Ricardo Reis of Princeton concluded that Mr. Greenspan has a "legitimate claim to being the greatest central banker who ever lived." Economist Allan Meltzer of Carnegie Mellon University, author of an exhaustive history of the Fed, cited these figures: from 1987 -- when Mr. Greenspan arrived -- to 2004, the U.S. economy added 27 million jobs and raised per capita consumption by 44%. Over this period, there have been two brief recessions, those of 1990-91 and 2001, lasting a total of 16 months.
Of course, Mr. Greenspan didn't single-handedly expand the economy. He regards the free enterprise system -- its reliance on risk-taking, private markets and individual exertion -- as the bedrock of American prosperity. This faith feeds his optimism. And there is a second sense in which Mr. Greenspan has also disclaimed credit for good economic performance. From 1979 to 1987, inflation dropped from to 4.4% from 13.3% -- the work mainly of Mr. Greenspan's predecessor, Paul Volcker, backed by Reagan. Because high inflation is wildly destabilizing (four recessions from 1969 to 1982), this decline automatically fostered improvement.
Still, there were ample opportunities for deeper, longer slumps. Consider. Just after Mr. Greenspan's appointment, the stock market plunged 20% in one day. During the 1990-91 recession, the U.S. banking industry suffered more than at any time since the Great Depression; from 1989 to 1992, about 500 banks went out of business, recalls economist David Hale of Hale Advisers. The 1997-98 Asian financial crisis was arguably the worst threat to the global economy since World War II. One side effect -- the near bankruptcy of hedge fund Long-Term Capital Management -- caused many frightened bond buyers to stop investing. And then there was the "popping" of the stock market bubble in 2000; shareholders lost $8 trillion in paper wealth.
Yet, no potential calamity became an actual calamity -- and for this, Mr. Greenspan deserves much credit....