In Depth: Federal Reserve

Alan Greenspan: Legacy as inflation fighter, monetary maestro

Former Chairman of the Federal Reserve Alan Greenspan Given Alan Greenspan's famously circumspect rhetorical style, we may never know the inspiration behind the greatest central banker ever.

What is known, according to reputable sources, is that the legendary inflation fighter and monetary maestro studied the clarinet at Julliard, drafts his speeches in longhand, and does most of his work in the bathtub.

As for his speaking in cautious conundrums, NBC News correspondent Andrea Mitchell may know better than anyone. As recently reported by columnist George Will, Greenspan and Mitchell dated for nearly a decade before he popped the question. Apparently, he had to repeat his marriage proposal three times before she understood what he was getting at. The two were married in 1997.

Mastery over interest rates

In spite of his penchant for obfuscation, or perhaps because of it, Greenspan is credited by many as single–handedly keeping the U.S. economy running on an even keel through his masterful manipulation of interest rates.

He achieved this in the face of multiple crises: the stock market crash of 1987, the savings and loan debacle, the Asian economic collapse of 1997, the bursting of the dot'com bubble in 2000, and reverberations from the 2001 terrorist attacks.

MIT Sloan Associate Professor Kristin Forbes summed up Greenspan's legacy for the Boston Globe, “He'll be remembered for his flexibility and quick responses to shocks that could have spiraled into major financial crises.” Greenspan was named “Man of the Year” by Time magazine in 1998.

Failed to sound a warning

There is widespread agreement that Greenspan was good in a crisis. But the retiring Fed chairman had his blind spots.

According to Jay Forrester, MIT Sloan Professor Emeritus, “Greenspan was great in creating his own reputation but he was blind to the way the Fed created the equity and housing price bubbles.”

Greenspan is also criticized for not speaking out more forcefully against the Bush tax cuts. Some economists believe it's the single biggest cause of the runaway federal deficit.

“The main blemish on the Greenspan record to which critics point is his failure during the debates about the Bush tax cuts to warn publicly (who knows what he said in private) about the adverse consequences of large structural budget deficits,” says MIT Sloan John C Head III Dean Richard Schmalensee. “It is not clear, however, that such warnings would have had any effect. After all, the Fed can only react to fiscal policy; it has no authority to shape it.”

Greenspan's impact on the economy will continue to be measured in almost mythic proportions. His successor Ben Bernanke may find that stepping into the light beyond Greenspan's shadow could be just as challenging as running the world's preeminent central bank.

Related links >>

AP Photo