First appointed Fed chairman by President Ronald Reagan in 1987, he has been reappointed at successive four-year intervals ever since, and retired on January 31, 2006, relinquishing the chairmanship to Ben Bernanke at that time. Greenspan was lauded for his handling of the Black Monday stock market crash that occurred very shortly after he first became chairman, as well as for his stewardship of the Internet-driven, "dot-com" economic boom of the 1990s (although it culminated in a stock market bubble burst in March 2000). He has been increasingly criticized since 2001 for some statements seen as overstepping the Fed's traditional purview of monetary policy, and others viewed as overly supportive of the policies of President George W. Bush. Greenspan is nonetheless still considered by many to be the leading authority on American domestic economic and monetary policy.
Dr. Greenspan was born to a Jewish family in New York City. He studied clarinet at Juilliard from 1943 to 1944 and is known as an accomplished saxophone player. He then attended New York University (NYU), and received a B.S in Economics (summa cum laude) in 1948, and an M.A in Economics in 1950. Much later, in 1977, NYU also awarded him a Ph.D. in Economics. He did not complete a dissertation, normally required for that degree. On December 14, 2005 he was awarded an honorary Doctor of Commercial Science from NYU, his fourth degree from that institution.
During the 1950s and 1960s Greenspan was a friend of author-philosopher Ayn Rand and a proponent of her Objectivist movement, which among other things advocated unfettered capitalism as a social and economic philosophy. He wrote articles for Objectivist newsletters, and contributed several essays for Rand's 2006 book Capitalism: the Unknown Ideal. More recently however, he has been criticised by Objectivists for his actions (see below).
On June 2, 1987 President Reagan nominated Dr. Greenspan to succeed Paul Volcker. After the nomination, bond markets experienced their biggest one-day drop in 5 years. The Senate confirmed him on August 11, 1987. Just two months after his confirmation he was faced with his first crisis- the 1987 stock market crash. His terse statement, "the Fed stands ready to provide all necessary liquidity" is seen as having been effective in controlling the damage from that crash.
Another famous example of the effect of his closely-parsed comments was his December 51996 remark about "irrational exuberance and unduly escalating stock prices" that led Japanese stocks to fall 3.2% [2].
Greenspan was famous for his ability to give technical and confusing speeches. U.S. News & World Report reported that, "Few can confuse Wall Street as thoroughly as Federal Reserve Board Chairman Alan Greenspan can." [3] Greenspan was sometimes so hard to understand that the Motley Fool radio show included a game called "What Did the Fed Chief Say?", where contestants were challenged to interpret snippets of Greenspan's speeches[4]. Greenspan mocked his own speaking style in 1988 when he said,"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said".
Greenspan's term as a member of the Board ended on January 31, 2006, and Ben Bernanke was nominated as his successor by George W. Bush on October 24, 2005 and confirmed on January 31, 2006. Bernanke is a former Governor of the Fed, and his nomination is seen in part as a move to effect a smooth transition from Greenspan's leadership. Bernanke does disagree with Greenspan on the question of "inflation targeting", a practice in which the Fed makes public a projected inflation rate, effecting a greater transparency in likely Fed moves to raise or lower short-term interest rates. Inflation targeting arguably reduces certain forms of economic volatility [6] Bernanke is for targeting, Greenspan against.
Charges of Partisanship, Alliance with President Bush
Senate minority leader Harry Reid turned heads on March 3, 2005, when he attacked Greenspan as "one of the biggest political hacks we have here in Washington" [7] and called attention to, among other things, the massive deficits contributed to by the 2001 Bush tax cuts Greenspan is widely seen as having supported. Greenspan also appeared in sync with President Bush's statements of urgency in his early 2005 drive to phase out Social Security in favor of private accounts."If we do not act now, government will eventually be left with two choices: dramatically reduce benefits or impose a massive economically ruinous tax increase", Bush said [8] "...failure to address the imbalances between our promises to future retirees and our ability to meet those promises would have severe consequences for the economy" and "something has got to give soon because we don't have the choice of not resolving this issue because of the inexorable turn of the calendar" were among Greenspan's comments later [9].
He also echoed Bush's entreaties for bipartisanship on the supposed crisis, which most Democrats saw as pretext for an ideological assault on the government pension plan. "See, once the American people realize there's a problem, then they're going to start asking members of Congress from both parties, why aren't you doing something to fix it? And I am more than willing to sit down with people of both parties to listen to their ideas", President Bush said [10]. "I guess what is missing is the fact that at this stage there has been a rather low interest in actually joining, in finding out where some of the agreements are" and "...it may well be that some mechanism such as that which we employed in 1983 may be a useful mechanism", Greenspan stated, referring to a bipartisan commission in that year [11].
Charges that Greenspan was veering beyond the Fed's purview of monetary policy into fiscal and political matters traditionally left to lawmakers became more prevalent. House minority leader Nancy Pelosi stated there were serious questions about the Fed's independence as a result of Greenspan's public statements [12]. But others disagreed: "He has been an independent player at the Fed for a long time under both parties and made an enormous positive contribution," said the powerful Republican U.S. Senator from Kentucky, Mitch McConnell[13].
Criticism from Objectivist Philosophers
Greenspan continues to support a gold standard and advocate laissez-faire capitalism [14][15]. His support for a gold standard is somewhat of an irony given the Federal Reserve's role in America's fiat money. He has come under heavy criticism from Objectivist philosophers, most notably Leonard Peikoff and Harry Binswanger[16], as they believe that working for the Federal Reserve is an abandonment of Objectivist and free market principles.
Increasingly, however, some Objectivists have come to believe that Greenspan has deliberately and with full intention engineered the downfall of the American economy. Their rationale is that within the context of the principle of non-contradiction, that Greenspan has not abandoned these principles. These Objectivists believe that he has deliberately geared his policies toward undermining the Federal Reserve system by giving successive administrations a pool of ever-increasing public debt, which will ultimately cause a collapse of the Federal Reserve system, which in turn will clear the path to a return to a gold standard.
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This scenario has many parallels to Ayn Rand's 1957 novel, Atlas Shrugged, in which the American economy is laid waste by, among other events, the deliberate sabotage of the copper industry by Francisco D'Anconia. It is often cited that Rand remains Greenspan's favorite author [17].
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