More than 20 years went by between when Alan Greenspan’s tenure as Federal Reserve chairman ended and when he died at 100 of Parkinson’s disease on Monday.
In the time since he stepped down, no Fed chair has come close to Greenspan’s acclamation by the American public – not Ben Bernanke, not Janet Yellen and certainly not recently retired chairman Jerome Powell – according to polling by Gallup.
To the extent that Americans have opinions about who ought to be running the Federal Reserve these days, Greenspan approaches their Platonic ideal.
Yet he was also several things that Fed chairs do not tend to be. He was a musician, a goldbug and the only head of the Fed who has ever testified before Congress in favor of its abolition.
Greenspan’s Great Timing
Part of his popularity with the American public was down to timing. Greenspan chaired the American central bank from 1987 to the beginning of 2006.
He benefited greatly from his predecessor Paul Volcker’s initially unpopular but successful efforts to tame inflation. Volcker had jacked interest rates as high as they could go, pushing the federal funds rate up to 20% at one point. Greenspan never had to do that.
Volcker’s successor served during the late 1990s boom and left before the Great Recession. Later, he missed the COVID period of central banking with its “quantitative easing” and the significant inflation that all this currency expansion stoked.
That still left Greenspan with his share of crises to navigate. Black Monday, on which the New York Stock Exchange lost over 20% of its value over a single day of trading, happened only a few months after he was put in charge of the Fed.
He also had the Asian financial crisis to weather in the 1990s. And of course the September 11 attacks and the beginning of the War on Terror happened on his watch.
In the early aughts, Greenspan warned against “irrational exuberance” driven by tech stocks but eventually caved and worked to lower interest rates.
Central Banking in the Details
As Fed chairman, Greenspan cared deeply about what today may seem like small things. For instance, Statement randomly ran across a reference to the man in the original caption for the picture below of a natural gas oven, all fired up.
It read: “Federal Reserve Chairman Alan Greenspan, testifying as an energy expert, told a U.S. House committee June 10 that high natural gas prices resulting from increased demand and shrinking domestic production are here to stay and may potentially drive U.S. industry overseas.”
He would eventually be proven wrong about that. The fracking revolution, which happened just after he vacated the central bank chair, would eventually turn America into the world’s largest exporter of natural gas.
Musician to Economist
He had not always been an economist. In his youth, Greenspan learned several musical instruments, including the clarinet and the saxophone. He studied at Juilliard and toured the country with the Henry Jerome swing band for a few years.
He was recognized even then for being good with numbers. Greenspan kept the band’s books and helped colleagues file their individual tax returns.
Speaking of the experience years later, he told a class of high school students that he was a “good amateur but only an average professional”, so he “left the band and enrolled at New York University” to study economics.
Greenspan was twice married but had no children. On the first date with his second wife, the television journalist Andrea Mitchell, he took her back to his apartment and exposed her to – an essay he had written on the problems with antitrust law.
Mitchell, 79, is now his widow and likely his sole heir.
Shocking the Senator
The man may have seemed boring to many, but he was also a radical in his own market way. In the 1960s, he had argued for a return to the gold standard and he was skeptical of most things that a central bank does. He was also a devotee of the controversial novelist and self-styled philosopher Ayn Rand.
In one Senate Banking Committee hearing that was recounted in Liberty Magazine, Greenspan all but made the Democratic ranking member from Maryland Paul Sarbanes’s head explode.
The exchange started when Greenspan recommended economic regulations should come with sunset provisions. That means that, absent reauthorization, those regulations would go away after a set period.
Sarbanes gave every indication in the hearing that he hated the idea. He accused the Fed chairman of “playing with fire, or indeed throwing gasoline on the fire”. In what he likely thought of as a gotcha moment, the senator asked if the authorizing law for the Fed should have a sunset clause.
Greenspan said he thought it should have a sunset clause, which caused some sputtering. Did he actually believe the US central bank “should cease to function unless affirmatively continued”? “That is correct, sir”, Greenspan said. He also endorsed sunsetting the Defense Department.
“Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?” Sarbanes asked.
Greenspan replied, “I've been recommending that for years, there's nothing new about that. [...] It would probably mean there is only one vote in the FOMC [Federal Open Market Committee] for that, but it is mine."
Lessons in Retirement
After he retired from the Fed, Greenspan wrote a few books and opened a consultancy. His net worth was estimated at $20m upon his death.
One of Greenspan’s books, Capitalism in America, was co-written by financial journalist Adrian Wooldridge. It begins with a “flight of fancy” involving a fictitious World Economic Forum meeting set in 1620.
The conference was about “who will dominate the world in the coming centuries” and the various regional powers made the case why they would be on top. However, one region got short shrift: North America.
It is easy to see why. The continent was sparsely populated and the economic output was paltry. At the time, “The entire North American continent produce[d] less wealth than the smallest German principality”.
Greenspan set out to tell “the most remarkable story of the past four hundred years: how a collection of thirteen colonies in the middle of nowhere transformed itself into the mightiest economy the world has seen”.
For about 20 years, he was an important part of that story. Going forward, students of finance will study Greenspan’s failures but also his improbable popular appeal and successes.