COMMENTARY
By Michael Mandel
Greenspan's Signature Achievement
Sure, he kept inflation at bay, but his real legacy will be successfully navigating the U.S. economy through the past decade's booms and busts
http://www.businessweek.com/bwdaily/dnflash/oct2005/nf20051024_3284_db042.htm When Alan Greenspan took the helm of the Federal Reserve in August, 1987, he was lauded as an inflation fighter. Indeed, one of his first official actions was to push up interest rates to cool down the economy.
Eighteen years later, with President Bush naming Ben Bernanke as the next Fed chief (see "Bernanke Gets His Chance") and Greenspan coming to the end of his long tenure as Fed chairman, the current chief's success with inflation is unquestioned. Taking out volatile energy and food prices, consumer inflation is still running at under 2%, compared to 4% when Greenspan came into office. That's a great performance.
In my view, however, Greenspan's real legacy is going to be something very different: His ability to successfully navigate the U.S. economy through the booms and busts of the past decade. Unlike past central bankers, he wasn't scared of booms, and he wasn't interested in bringing down the stock market, even when it soared to outrageous heights in 1999 and 2000. Instead, he focused on cushioning the blow to the financial system and the economy when the tech and the stock market booms finally came to an end.
CORRECT PATH. This policy of letting the economy "run hot" has so far shown huge benefits, without any big costs. As the unemployment rate dropped below 5% in mid-1997, Greenspan came under enormous pressure -- both from Wall Street and within the Fed -- to raise interest rates. The fear was that excessively tight labor markets were going to trigger an inflationary spiral unless the central bank quickly took action.