Alan Greenspan

  • Category: Business
  • Words: 1747
  • Grade: 90
Alan Greenspan Alan Greenspan, the chairman of the Federal Reserve, has always fascinated the financial community. Whatever he says can make or break the markets. He is a highly educated economist with many years of experience. People seek for his advice and obey his judgments. His proclamations are repeated and expounded upon. Greenspan is loved, feared, and never ever questioned. As a result of being a strong chairman of the Fed, he has made a difference the U.S. economy through his way of dealing with inflation. Also, the presidency no longer counterbalances or even criticizes the Fed. First of all, we will consider his background. Alan Greenspan was born on March 6, 1926, in New York City. He received a B.S. in economics in 1948, an M.A. in economics in 1950, and a Ph.D. in economics in 1977, all from New York University. Also, Dr. Greenspan also has performed advanced graduate study at Columbia University (Board of Governors par. 2) He taught economics at New York University from 1953 to 1955 and formed a consulting firm in 1954 called Townsend-Greenspan & Co., Inc. Dr. Greenspan has received many honorary degrees from Harvard, Yale, Pennsylvania, Leuven (Belgium), Notre Dame, Wake Forest, and Colgate universities. Furthermore, he has received numerous awards such as the Thomas Jefferson Award for the Greatest Public Service Performed by an elected or appointed official in1976, and election as a Fellow of the American Statistical Association, in1989 (Board of Governors par. 9) The novelist Ayn Rand influenced Dr. Greenspan. He was deeply influenced by her philosophy of objectivism, which exalts laissez-faire capitalism and promotes "rational selfishness," the belief that people should live for their own rational self interest. At Rand's insistence, he became an adviser to Richard Nixon during the 1968 presidential campaign. He advised President Nixon informally until he was made chairman of the Council of Economic Advisers in 1974 under President Ford. He served during the Ford Administration from 1974 to 1977. During this time, his policies were credited with reducing inflation but leading to recession and may have contributed to Ford's defeat for reelection (Encarta par 1). From 1981 to 1983 he served as Chairman of the National Commission on Social Security Reform. Other previous presidential appointments include the President's Foreign Intelligence Advisory Board, the Commission of Financial Structure and Regulation, the Commission on Financial Structure and Regulation, the Commission of an All-Volunteer Armed Force, and the Task Force on Economic Growth (Board of Governors par. 5). Dr. Greenspan has served in many corporate and noncorporte positions. In recent years he has served as a Corporate Director for Aluminum Company of America (Alcoa); Automatic Data Processing, Inc.; General Foods, Inc.; J.P. Morgan & Co., Inc.; Mobil Corporation; and The Pittston Company. Some of his noncorporate positions include Member of the Board of Trustees, The Rand Corporation; Director, Institute for International Economics; Member of the Board of Overseers; and Vice Chairman and Trustee, Economic Club of New York (Board of Governors par. 6,7). There are a few interesting facts about his personal life and personality. He was a newlywed at the age of 71, some 44 years after his first marriage was annulled. He was a musician in the 1940s before turning to a life of number crunching. Although he is an admirer of technology, he drafts his speeches in longhand. In addition, he is famous for not speaking at parties. One hostess observed that he would nod a lot and at the end of the night people say, "Wow! That man is brilliant," even though he had never said anything (Chait 22). In fact, one congressman's wife observed him at a party and in 35 minutes of chatter, he had only spoken 22 words. Most of the words were directed towards the person serving the hors d'oeuvers. However, he still managed to leave a good impression because the people who he had spoken to said that he was very "insightful". Currently, Alan Greenspan is serving his third four-year term, ending in June 20, 2000, as Chairman of the Board of Governors of the Federal Reserve System. In addition, he serves as Chairman of the Federal Open Market Committee; the System's principal monetary policymaking body (Board of Governors par. 1) President Ronald Reagan appointed Alan Greenspan as Chairman on August 11, 1987. A moderate Republican, he believed in deregulation of the banking industry and opposed government intervention in the economy, especially during the recession crisis of the early 1990s (Encarta par. 3). He was reappointed to the Board to a full 14-year term, which began February 1, 1992. He opposed tax cuts, believing that they would contribute to the growing federal deficit. Also, he supported President Clinton's 1993 deficit-reduction programs because he believed that spending cuts were far better than tax increases (Encarta par. 3). In fact, he gets along better with the Clinton Administration than he ever did with its GOP predecessors. In February 1993, Hillary Clinton invited Greenspan to sit next to her while President Clinton gave his first State of the Union address. This close relationship between Clinton's Treasury Department and Greenspan represented something new. "Instead of baying at the moon, the president had reconciled himself to this own ineffectuality (Chait 24)." Now, making disparaging remarks about the Fed is taboo. Clinton's acceptance has consecrated Greenspan's exalted status. Alan Greenspan has had a recent transformation in the public mind. In 1994, he was engineering a series of interest-rate increases, and the Federal Reserve chairman was called a "zealot willing to strangle economic growth in pursuit of a chimerical goal of zero inflation (Church par.1)." Today, many people are giving him credit for the happy state of the U.S. economy. Economist Allen Sinai said, "The Greenspan Fed is the all-time champion in American history (Church par. 1)." In 1996 and 1997 he didn't do much of anything to the interest rates. From February 1996 to December 1997, the Fed made only one change in interest rates: a quarter-point increase in March of 1997. He resisted pressure from inside and outside the Fed to slow down the economy. Instead of being overly concerned about inflation, he seemed to have accepted the idea that deep changes in the economy have made sustained growth possible without pushing prices up. (Church par. 2) Because of Alan Greenspan, the Fed has learned to be more patient. It allows the economy to grow faster than expected without putting on the brakes by raising interest rates. However, Greenspan always stays on guard. He is a renowned numbers cruncher who keeps tabs on the most obscure corners of the economy. Robin Leight-Pemberton said that he was "likely to back up his predictions by citing such obscure data as vacuum-cleaner sales in Iowa (Church Par 3)." Greenspan is reaping the praise of the financial community. There is a widely held sense that he has masterminded the nation's prosperity. As many people are becoming stockholders, they regard him as a "living god to be regarded with helpless awe (Chait 20)." This appreciation arises largely from the fact that people do not fully understand just what he does. The Federal Reserve can only directly affect the interest rates (figure 1). The effects can take awhile to be felt. The Fed can cause recessions, or it can let them last too long, or it can overreact. "Like a barber with a chainsaw, Greenspan has a lot of power but not much control (Chait 20)." To Greenspan's credit, he has let the economy run its course to see what happens. Doing something to prevent inflation might have messed up the economy. Instead, he has presided over an economy that is capable of producing very low unemployment (4.3%) without causing inflation and Greenspan has had the good sense not to blow it (Chait 22). Recently, the Fed has been attempting to slow the U.S. economy and guard against accelerating inflation. On November 16, 1999, the Fed raised its federal funds rate one-quarter point to 5.50 percent. This has been the third quarter point increase within the last five months. Also, the discount rate was raised a quarter point to 5 percent, the second increase this year (Goldman 1). Alan Greenspan and the other policy makers do not want consumers to spend so much. They are trying to diminish the risk of inflation. Chris Grisanti, Director of Research with Spears, Benzak, Salomon & Farrell said, "There's some nice symmetry because now we've taken back the 75 basis points Greenspan gave us last year (Fig. 2) (Goldman 4). Another difference that Greenspan has made is relationship with the White House. The Fed wields more influence over the White House than ever before. "Basking in Greenspan's brilliance has become a cherished congressional ritual. (Chait 24)" In 1978, Congress mandated that the Fed chairman testify twice a year so that he could be held accountable for his monetary policies. Traditionally, Congress has taken this opportunity to grill the Fed chairman. Today, things have changed; the senators are more inclined to compliment him that to query him during these meetings. The topics of their questions have included topics such as; paying off the national debt, the Japanese economy, and the year 2000 computer bug. Very few Senators ask Greenspan about monetary policy, which is the reason that the hearings exist in the first place. In a hearing held in February of 1998, only one senator asked him about monetary policy. Everybody else feels like its not his or her place to tell Greenspan how to do his job. (Chait 24) In addition, the hearings are now a way of soliciting Greenspan's benediction for their own proposals. In this way, Greenspan's influence goes beyond his nominal powers as Fed chairman. In conclusion, I believe that Alan Greenspan has made a difference in the U.S. economy. His wisdom and patience have yielded good results with regard to inflation. Also, there is no longer split control over the economy between the Fed, on one hand, and Congress and the President, on the other. Alan Blinder, Greenspan's former vice chairman said, "He's become the national economic guru on everything." (Chait 25)

Works Cited Chait, Jonathan, Glass Stephen. "Praised be Greenspan." The New Republic 30 Mar 1998: 19-20+. Church, George J. "Alan Greenspan." Time 29 Dec 1997 "“ 5 Jan 1998: 97. Goldman, M Corey. "Fed lifts benchmark rates." Cnnfn The Financial Network . Members of the Board of Governors. Alan Greenspan, Chairman. . Microsoft Encarta Encyclopedia 99. Alan Greenspan. Microsoft Corporation. 1993-1998.
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