He had great credentials when President Ronald Reagan nominated him to be chief of the Federal Reserve in 1987. Just 69 days into Alan Geenspan’s term, however, the Dow dropped by 508 points and 22 percent (if the stock market average dropped 22 percent today, the Dow would lose about 3,000 points). The financial system was close to a financial panic, but that didn’t happen, not then and not during his five terms as Fed chairman.
In his book The Age of Turbulence, Greenspan says the effect of 9/11 was far different. Not much happened at all. He knew then that the world of a global capitalist economy is more resilient and fast-changing than it was in 1987.
Previous to his tenure, it was assumed that an unemployment rate below 6 percent would trigger inflation. Greenspan believed the New Economy would prevent that. In 1995 and 1996, he convinced the Federal Open Market Committee to leave interest rates low in spite of falling unemployment. He was right. The unemployment rate fell below 4 percent in the 1990s without causing inflation.
Some economists blame the post 9/11 interest rate cuts for cheap money that wound up in the real estate market. Greenspan says the blame lies less with the Fed and more with investors’ demand for high-yielding debt like subprime mortgage bonds.
His 531-page book provides glimpses of his life, including several less well-known aspects. Greenspan started playing the clarinet at age 12 and later studied at Julliard School of Music. He played professionally in the Henry Jerome band in 1944 before deciding on a career in economics. In 1948, he graduated summa cum laude from New York University and later earned a master’s degree and a Ph.D. He co-founded Townsend-Greenspan & Co., an economic consulting firm. In 1974, President Ford named him chairman of Committee on Social Security Reform.
The Age of Turbulence by Alan Greenspan, Penguin Press, 531 pages, $35.