(1926-)
Federal Reserve Board
Overview
Alan Greenspan is the chairman of the Federal Reserve Board, a position he has held since 1987. In his fourth term, his appointment will expire in 2004. Greenspan is widely known for his intellectual abilities, his introspective and aloof personality, and his ability to finesse the national economy with a light touch.
Personal Life
Alan Greenspan was born on March 6, 1926, in New York City to Herbert and Rose (Goldsmith) Greenspan. His parents divorced when he was five years old, and Greenspan and his mother moved in with his maternal grandparents. The four shared a cramped one–bedroom apartment. Greenspan attended public schools, where he was a good, although not exceptional, student. During his school days, Greenspan developed a reputation for his aloofness and introspective personality—characteristics for which he would be well known throughout his adult life. He developed a keen interest in music, studying the clarinet and saxophone. Greenspan graduated from George Washington High School in 1943.
With dreams of becoming a professional musician, Greenspan enrolled in the prestigious Julliard School of Music as a clarinet major. However, he dropped out in less than a year to join Henry Jerome, who had offered Greenspan $62 a week to play in his swing band. In January 1944, Greenspan began touring the eastern United States. Although a very good amateur musician, Greenspan, by his own definition,was an average professional. Several months before the band dissolved in 1945, he quit, having decided to pursue a new career.
After giving up on the idea of making a career in music, Greenspan decided to investigate his other serious interest—economics. To that end, he enrolled in New York University, from which he graduated with a B.S. in economics in 1948, with highest honors. He went on to pursue his graduate studies at Columbia University, where he came under the influence of well–known economist Arthur Burns, who would later serve as the chairman of the Federal Reserve Board (also known as "the Fed") from 1970 to 1978. Greenspan completed his master's degree in 1950, but dropped out of the Ph.D. program before finishing due to a lack of funds. In 1977 New York University awarded Greenspan a Ph.D. based on his contribution to economics.
During the 1950s, Greenspan encountered Ayn Rand, a Russian–born philosopher and author of the best–selling novel The Fountainhead. For the next 15 years, Greenspan socialized and philosophized within the inner circle of Rand and her followers, called objectivists. Rand preached in the defense of capitalism and free market economy. Later, Greenspan would say that one of the most important things he learned from Rand was that not only did the capitalist system work as an economic model in terms of efficiency and practicality, it was also moral.
In 1952 Greenspan went on a blind date with Joan Mitchell. Ten months later the couple married. However, before their first anniversary, the two decided to split and have the marriage annulled. After the annulment Greenspan and Mitchell remained good friends. On April 6, 1997, Greenspan married NBC news correspondent Andrea Mitchell, after a twelve–year courtship. The two have no children.
Career Details
After dropping out of graduate school, Greenspan began working for the National Industrial Conference Board, later known simply as the Conference Board, a nonprofit organization that studies business practices. Greenspan focused his work on researching issues that affect heavy industry. In 1954, twenty–seven–year–old Greenspan partnered with sixty–five–year–old William Townsend to create the economic consulting firm, Townsend–Greenspan & Company. Townsend, who had been in the business since 1929, needed a new partner, and Greenspan was anxiously awaiting a chance to step out on his own. The new team shared a small office on Wall Street, and Greenspan quickly began being noticed as a man who had an incredible affinity to numbers, data, and statistics. By the late 1950s, Townsend–Greenspan was a well–established name with industrialists, and the company carried some impressive clients on their books, including U.S. Steel, Owens Corning, and Aluminum Company of America (Alcoa). When Townsend died of a heart attack in 1958, Greenspan brought in Kathryn Eickhoff as a new partner.
By the late 1960s Greenspan was a millionaire and living in an apartment at the United Nations Plaza, sharing an address with Johnny Carson and Walter Cronkite. Despite the show of obvious financial success, few if any of Greenspan's friends predicted his coming near–celebrity status as he stepped into the world of politics. Justin Martin noted in his biography, Greenspan: The Man Behind the Money, "The general impression among people who knew Greenspan in those days was that he wasn't exactly marked for greatness. . . . He was a success, no question. But no one expected him to rise to dizzying heights. People generally found him modest, reliable, gracious, erudite, and more than a tad introspective. None of these traits seemed to lend themselves to setting the world on fire. His old friends were destined to watch his career unfold. . . in stunned amazement."
Chronology: Alan Greenspan
1926: Born.
1954: Became a partner in Townsend–Greenspan, an economic consulting firm.
1968: Joined Richard Nixon's presidential campaign as a policy adviser.
1974: Appointed by Nixon as chair of the Council of Economic Advisers.
1975: Appeared on the cover of Newsweek.
1981: Appointed by Ronald Reagan as the chair of National Commission on Social Security Reform.
1987: Appointed by Reagan as the chair of the Federal Reserve Board; closed Townsend–Greenspan.
2000: Nomination approved to a fourth term as chair of the Federal Reserve Board, ending 2004.
Greenspan's first encounter with organized politics came in 1968 when a friend introduced him to Richard Nixon, who invited Greenspan to join his presidential campaign as a domestic policy adviser, a part–time volunteer position. Although Greenspan declined Nixon's offer to join him on staff in Washington after winning the election, Greenspan remained attached to politics by being appointed to numerous commissions, includingthe Task Force on Economic Growth, the Commission on Financial Structure and Regulation, and the Commission for an All–Volunteer Armed Forces. The latter, referred to as the Gates Commission, ultimately recommended an end to the military draft. Through the early 1970s Greenspan split his time between Washington and New York where he continued to run Townsend–Greenspan.
In 1974 Greenspan was offered a job as the chair of the Council of Economic Advisers (CEA) by the Nixon administration. After steadfastly refusing the position, Greenspan finally was convinced. He turned his firm over to his employees, moved to Washington, and traded his $300,000 salary for the $42,000 the CEA paid. By the time Greenspan's nomination had been confirmed, Nixon had resigned amidst the Watergate scandal, and the economy was in a tailspin of inflation. While chairing a series of meetings on how the economy was affecting a variety of social concerns, Greenspan made his biggest public blunder. When accused by a participant that Ford's policies favored the rich, Greenspan, trying to explain that economy affects everyone, responded, "If you really wanted to examine who percentage–wise is hurt the most in their incomes, it is the Wall Street brokers. I mean, their incomes have gone down the most." Unfortunately, Greenspan's natural propensity to state the numbers was a public relations disaster. He later amended his statement in a joint session of Congress, saying, "Obviously the poor are suffering more."
Greenspan's involvement in bringing the economy back in line, and his strong influence on President Ford, brought him a certain measure of fame in the mid–1970s. In 1975 he appeared on the cover of Newsweek. He drew further media attention when he began accompanying Barbara Walters to social events. However, Greenspan receded from the public light after Ford lost the 1976 presidential election to Jimmy Carter. He stepped down from the chair of the CEA and returned to New York and his consulting firm.
When Ronald Reagan made his successful bid for the presidency in 1980, Greenspan reentered politics as an economic adviser to the campaign. He continued to advise Reagan following the election, and in 1981, when social security funding became a divisive topic, Reagan called on Greenspan to chair the newly formed National Commission on Social Security Reform, later known as the Greenspan Commission. Reagan had chosen Greenspan because he was widely regarded for his economic abilities, his ability to be bipartisan, and his skill at remaining calm under intense pressure. When the commission's work was finished, resulting in a social security reform bill passed into law in 1983, Greenspan was once again out of the Washington limelight. But that would all change in 1987.
On June 2, 1987, Reagan announced that he was nominating Greenspan as the next chairman of the Fed. The stock market reacted first; it dropped twenty points, but rebounded quickly, reflecting a general comfort felt by brokers with Reagan's selection. However, international markets reacted more severely; one of the main contentions against Greenspan's nomination was his lack of experience in global economics. Even during his nomination hearings, Greenspan was perfecting his ability to speak without saying too much—a necessary trait when, as Fed chairman, a simple change in his mood, voice, or outlook could cause a major reaction by the economy. For example, according to Martin, when asked a question on antitrust, he responded, "I am, as you point out, philosophically opposed to the Sherman Act. I have been and continue to be. But I understand it, and I understand the legal criteria which are involved in applying it and, hopefully, I am able to separate my own personal views from what is legally required." To which the questioner responded, "That is both very discomforting and very comforting, if you know what I mean."
On July 31, 1987, Greenspan closed the firm Townsend–Greenspan. Days later the Senate approved his nomination by a vote of 91 to 2, and on August 11, he was sworn in as the thirteenth chairman of the Federal Reserve. Greenspan continued to serve as chair of the Fed through Reagan's presidency. He was reappointed to a second four–year term by President George Bush in 1991. Four years later, Bill Clinton awarded him a third term as chair, despite their different party affiliations, and in 2000 Clinton reappointed him to a fourth term, which ends on June 20, 2004.
Social and Economic Impact
The Fed serves as the nation's central bank. Its job is to monitor the growth of the economy and take measures to keep it from growing too fast, which leads to inflation, or from growing too slowly, which leads to recession. The Fed has controls how much money is in circulation, regulates how much money banks must have on hand, and sets the interest rate on money it loans to banks. For example, if the Fed increases the interest rate it charges banks, banks, in turn, increase the interest rates they charge consumers. As a result, fewer people borrow money, less money is spent, and the economy slows. On the other hand, if the Fed decreases interest rates, banks follow, and borrowing becomes more attractive to consumers, thus fueling the economy.
Just two months after his appointment, the bottom fell out of the stock market, and Greenspan had a full–scale economic crisis on his hands. On October 19, 1987, which became known as Black Monday, the Dow Jones industrial average (an index of 30 major stock prices) dropped a record 508 points, sending the economy into a tailspin. Greenspan moved quickly to avoid the Fed's mistakes made during the 1929 crash that led to the Great Depression. Although billions of dollars had been lost in the stock market, the greater issue was the panicky reaction of the largest economy, namely the banks. Greenspan flooded the market with money and pressured banks to continue to make loans despite the uncertain times. His quick and decisive actions were credited with a relatively speedy recovery of the economy.
Although not all his decisions have been popular or, in hindsight, correct, Greenspan has garnered the trust and admiration of the nation. As Bob Woodward wrote in Maestro: Greenspan's Fed and the American Boom, "Although his words are almost unbearably opaque, he appears to be doing something very rare—telling the truth. The very act of thinking, the strain in his wrinkled forehead, can be seen in the video footage of him before a microphone. At times it seems painful. But the public has rewarded his caution, reflection, and results with their confidence. That he is the unelected steward of the economy is simply accepted." ABC.com's Newsmakers quotes former Representative Frank Ikard of Texas referring to Greenspan: "He is the kind of person who knows how many thousands of flat–headed bots were used in a Chevrolet and what it would do to the national economy if you took out three of them." When his renomination was announced in 1996, Fortune commissioned a poll that showed a 96 percent approval rating among the nations top 1,000 executives.
Throughout his career as Fed chair, Greenspan has been a staunch opponent of inflation. He is prone to make small changes rather than dramatic moves, and he is cautious in making statements both of optimism and pessimism regarding the future of the economy. He has seen the U.S. economy through both difficult and prosperous times. However, his lasting legend may be how well he is able to control the recessive economy of the last three years of his term. In 2001, he lowered the interest rate no less than nine times, bringing it to its lowest point since 1960. On October 22, 2001, Newsweek ran an article titled "Can Alan Save the Day Again? Probably Not," suggesting that the public and Wall Street both have overestimated Greenspan's power to control the economy. The article's author, Robert Samuelson, noted, "The point is that even zero interest rates can't reinvigorate the economy if other conditions are sufficiently unhealthy."
The significant slowdown in the American economy during 2001 caused some loss of admiration for Greenspan, whom some blame for not lowering interest rates soon enough or fast enough to jump–start the economy. After the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, consumer confidence plunged further, and an estimated $1 trillion of wealth was destroyed by the collapse of the stock market in the wake of the attacks. If Greenspan succeeds in averting an all–out recession, he will most definitely find a permanent place among the nation's heroes. As Rob Norton of Fortune wrote in 1996, "He will be remembered not only as the best Fed chairman ever but perhaps as the preeminent central banker of the age."
Sources of Information
Contact at: Federal Reserve Board
20th and C Streets, NW
Washington, DC 20551
Business Phone: (202)452–3215
URL: http://www.federalreserve.gov
Bibliography
"Alan Greenspan: Chairman of the Federal Reserve Board." ABC Newsmakers, 1997. Available at http://www.abc.com.
Beckner, Steven K. Back From the Brink: The Greenspan Years. New York: John Wiley & Sons, 1996.
"Federal Reserve System." The Federal Reserve System, 2001. Available at http://www.federalreserve.gov.
Fox, Justin. "Did He Blow It? We've Long Cursed Deities for our Suffering—Alan Greenspan is No Exception." Fortune, 2 April 2001.
Martin, Justin. Greenspan: The Man Behind the Money. Cambridge, MA: Perseus Publishing, 2000.
Miller, Rich, and Laura Cohn. "Even 'Free Money' May Not Do the Trick." Business Week, 8 October 2001.
Norton, Rob. "In Greenspan We Trust." Fortune, 18 March 1996.
Samuelson, Robert J. "Can Alan Save the Day Again? Probably Not." Newsweek, 22 October 2001.
Woodward, Bob. Maestro: Greenspan's Fed and the American Boom. New York: Simon & Schuster, 2000.
