Alan Greenspan: Brief Bio, Policies, Legacy

Alan Greenspan

Investopedia / Bailey Mariner

Who Is Alan Greenspan?

Alan Greenspan is an American economist who was the chair of the Board of Governors of the Federal Reserve (Fed), the United States' central bank, from 1987 until 2006. In that role, he also served as the chair of the Federal Open Market Committee (FOMC), which is the Fed’s principal monetary policymaking committee that makes decisions on interest rates and managing the U.S. money supply.

Greenspan is best known for largely presiding over the Great Moderation, a period of relatively stable inflation and macroeconomic growth, that lasted from the mid-1980s to the financial crisis in 2007.

Key Takeaways

  • Alan Greenspan is an American economist and former chair of the Federal Reserve.
  • Greenspan's policy was defined by the Great Moderation, or the long-term maintenance of low, stable inflation and economic growth.
  • The expansionary monetary policy of "easy money" attributed to Greenspan's tenure has been blamed in part for stoking the 2000 dot-com bubble and the 2008 financial crisis.
  • Greenspan's time as chair began with the immediate challenge of dealing with the historic 1987 stock market crash.
  • Greenspan is considered by some to be hawkish in his concerns over inflation. He received criticism for focusing more on controlling prices than on achieving full employment.

Early Life and Education

Alan Greenspan was born in New York City on March 6, 1926. He received his bachelor’s, master’s, and doctoral degrees in economics, all from New York University, as well as studying economics at Columbia University in the early 1950s under Arthur Burns, who would later serve two consecutive terms as chair of the Board of Governors of the Fed.

Greenspan's first job, in 1948, was not in government but for a non-profit analyzing demand for steel, aluminum, and copper. After this, Greenspan ran an economic consulting firm in New York City, Townsend-Greenspan & Co., Inc., from 1954 to 1974 and 1977 to 1987. Greenspan began his career in the public sector in 1974 when he served as chair of the President’s Council of Economic Advisers (CEA) under President Gerald Ford.

In 1987, Greenspan became the 13th chair of the Fed, replacing Paul Volcker. President Ronald Reagan was the first to appoint Greenspan to the office, but three other presidents, George H.W. Bush, Bill Clinton, and George W. Bush, named him to four additional terms. His tenure as chair lasted for more than 18 years before he retired in 2006 to be replaced by Ben Bernanke. After leaving, he published his memoir, The Age of Turbulence, and began his own Washington DC-based consulting firm, Greenspan Associates LLC. 

Alan Greenspan was known as being adept at gaining consensus among Fed board members on policy issues and for serving during one of the most severe economic crises of the late 20th century, the aftermath of the stock market crash of 1987. After that crash, he advocated for sharply slashing interest rates to prevent the economy from sinking into a deep depression.

Fast Fact

Alan Greenspan was awarded the Presidential Medal of Freedom by George W. Bush, making him the only Fed chair to receive the award.

Alan Greenspan’s Policies and Actions

Greenspan presided over one of the most prosperous periods in American history—thanks in no small part, supporters feel, to his helming of the Fed. Still, some of his policies and actions were controversial, either at the time or in retrospect.

Views on Inflation

Early in his career, Greenspan developed a reputation for being hawkish on inflation, in part due to his advocacy for a return to the gold standard in monetary policy in the 1967 essay "Gold and Economic Freedom." 

His allegedly “hawkish” stance was portrayed by early critics as a preference for sacrificing economic growth in exchange for preventing inflation. Greenspan eventually reversed those views as Fed chief; in a 1998 speech, he conceded that the new economy might not be as susceptible to inflation as he had first thought.

In practice, Greenspan's supposedly hawkish approach was flexible, to say the least. He was clearly willing to risk inflation under conditions that could create a severe depression and certainly pursued a generally easy money policy relative to his predecessor, Paul Volcker. In particular, in the early 2000s, Greenspan presided over cutting interest rates to levels not seen in many decades.

Flip-Flop on Interest Rates

In 2000, Greenspan advocated reducing interest rates after the dot-com bubble burst. He did so again in 2001 after 9-11, the World Trade Center attack. Following 9-11, Greenspan led the FOMC to immediately reduce the Fed funds rate from 3.5% to 3%, and, in the following months, he worked toward lowering that rate to a record (at the time) low of 1.13% and holding it there for a full year.

Some criticized those rate cuts as having the potential to inflate asset price bubbles in the U.S. Greenspan's pro-inflationary policies, particularly during this period, are today generally understood to have contributed to the U.S. housing bubble, subsequent subprime mortgage financial crisis, and the Great Recession, though this is of course disputed by Greenspan and his allies.

Encouraging Adjustable-Rate Mortgages

In a 2004 speech, Greenspan suggested more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to prevailing market interest rates. Under Greenspan’s tenure, interest rates subsequently rose as inflation accelerated. This increase reset many of those mortgages to much higher payments, creating even more distress for many homeowners and exacerbating the impact of that crisis.

The "Greenspan Put"

The "Greenspan put" was a monetary policy strategy popular during the 1990s and 2000s under Greenspan. Throughout his reign, he attempted to help support the U.S. economy by actively using the federal funds rate to aggressively lower interest rates to fight the deflation of asset price bubbles.

The Greenspan put created a substantial moral hazard in financial markets. Informed investors could expect the Fed to take predictable actions that would bailout investor's losses, which distort the incentives of market participants. This created an environment where investors were encouraged to take excessive risk because Fed monetary policy tended to inherently limit their potential losses in the event of a market downturn in an analogous way to buying put options on the open market.

How Long Was Alan Greenspan Federal Reserve Chair?

Alan Greenspan served as Chair of the Fed from 1987 to 2006, for a total of five terms.

Who Appointed Alan Greenspan?

President Ronald Reagan appointed Alan Greenspan as Chair of the Fed in 1987.

Who Replaced Alan Greenspan?

Ben Bernanke replaced Alan Greenspan as Chair of the Fed when he was appointed in 2006. Bernanke served until 2014.

How Old Is Alan Greenspan?

Alan Greenspan was born on March 6, 1926, making him 95 years old as of June 2021.

Who Is Alan Greenspan's Wife?

Alan Greenspan married journalist Andrea Mitchell in 1997.

What Is Alan Greenspan Doing Now?

After his time at the Fed, Greenspan has worked as an advisor through his company, Greenspan Associates LLC.

The Bottom Line

Like many other government officials, the success of Alan Greenspan's five terms as Chair of the Fed will depend on who you ask. However, it is certainly true that Greenspan faced some massive challenges during his tenure, such as the 1987 stock market crash and the attacks on the World Trade Center.

Overall, Greenspan helped usher in a strong U.S. economy in the 1990s. Opinion on how much his actions caused the economic recession that began shortly after his term ended varies.

Article Sources
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  1. Federal Reserve History. "Alan Greenspan." Accessed June 14, 2021.

  2. Alan Greenspan. "Gold and Economic Freedom." Ayn Rand ed: Capitalism: the Unknown Ideal. New American Library, 1967.

  3. Federal Reserve Board. "1998 Remarks by Chairman Alan Greenspan." Accessed June 14, 2021.

  4. Federal Reserve Economic Data. "Effective Federal Funds Rate." Accessed June 14, 2021.

  5. Mario Rojas Miranda. "The Debate over the Origin of the Great Recession in the United States," Pages 79-103. Norteamérica, Volume 12, Issue 1, 2017.

  6. Federal Reserve Board. "Remarks by Chairman Alan Greenspan." Accessed June 14, 2021.

  7. Marcus Miller, Paul Weller, Lei Zhang. "Moral Hazard and The US Stock Market: Analysing the ‘Greenspan Put'," Pages 171–186. The Economic Journal, Volume 112, Issue 478, 2002.

  8. Sandeep Dahiya, Bardia Kamrad, Valerio Potì, and Akhtar R. Siddique. "The Greenspan Put." Accessed June 14, 2021.

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