US economist, who succeeded US banker Paul Volcker as chair of the US Federal Reserve System in 1987 and successfully pumped liquidity into the market to avert a sudden ‘free fall’ into recession after the Wall Street share crash of October of that year. In 2000 he was nominated for a fourth term, for his skill in steering the US economy through ten years of expansion, which was the longest in US history. He retired from the chair in 2006.
He introduced a series of interest rate rises in 1999 that continued into 2000 as the US economy continued to expand; he blamed ‘unsustainable rates’ of growth, low unemployment, and market volatility, particularly in the technology sector, and criticized an ‘unforgiving capitalism for driving wealth creation’. In early 2001 he introduced a series of aggressive interest rate cuts to halt the slow-down in the economy, but was criticized for having kept rates too high when the US economy had already turned down.
Greenspan founded the economic consulting firm Townsend-Greenspan in 1954, before serving as economics adviser and member of a variety of ‘task forces’ under the US presidents Richard Nixon, Gerald Ford, and Ronald Reagan. A committed Republican, he is an advocate of free market economics and has earned acclaim for his manipulation of interest rates and tight inflationary control.
Greenspan was born in New York. His father was a stockbroker and his mother worked in retailing. Initially wanting to be a professional musician, Greenspan played the clarinet and tenor saxophone as a student at George Washington High School, attended the Juilliard School of Music, and played as a professional jazz musician with the Henry Jerome swing band.
From New York University, he received a BS (1948), an MA (1950), and later, in 1977, a PhD in economics. He also started a doctoral programme at Columbia University, but withdrew to become a professional economist for the National Industrial Conference Board. With US bond trader William Townsend he founded Townsend-Greenspan in 1954, offering forecasts and research to financial institutions and large corporations. Greenspan was director of policy research for Richard Nixon's 1968 presidential campaign, before coming to Washington as chairman of the Council of Economic Advisors (1974–77) under President Ford. After the election of US Democrat president, Jimmy Carter, he returned to private life at Townsend-Greenspan until Ronald Reagan was elected, after which he became chairman of the National Commission on Social Security Reform (1981–83).
As chairman of the Federal Reserve Board, Greenspan used monetary policy decisively to steer the economy through crises. When the Dow Jones Industrial Average plunged a record 508 points on Black Monday in October 1987, just a few months after his appointment, Greenspan announced that the Federal Reserve was ready to supply necessary liquidity to the financial markets. He also prevented the near collapse of the banking industry when it was saddled in the late 1980s with bad property loans. However, in the early 1990s his reluctance to cut interest rates as the economy was falling into a recession was reputed to have lost Republican George Bush the presidency in 1992 to his Democrat rival Bill Clinton. In 1998, in response to the Asian financial crisis which had erupted the previous year, Greenspan lowered interest rates to protect the US economy. He also rescued the failed Long-Term Capital Management hedge fund that was most exposed to the Russian debt default of 1998 (the failure of the fund having threatened the stability of the financial system itself). He published a memoir, The Age of Turbulence: Adventures in a New World, in 2007.