Alan Greenspan - Life and Ideas

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Alan Greenspan - Life and Ideas
Alan Greenspan is mostly known for serving as the chairperson of the Federal Reserve of the United States for the second longest period in history-a total of five continuous terms from 1987 to 2006. This has seen him out sit four presidents including Ronald Reagan, George Bush, Bill Clinton and George W. Bush. However, it has not been a smooth ride for him since he was named one of the 25 people blamed for the financial predicament in the early 2000s. That notwithstanding, Alan Greenspan is still considered by many to be one of the greatest American Economist today.
The purpose of this paper is to report on the life and career of Alan Greenspan and to report his contributions to the field of economics. As a dedicated monetarist and the Federal Reserve chairperson for more than 18 years, he has been instrumental in shaping the economy. Effects of some of the decisions he made while still in office are being felt to-date. He has loyal supporters and hardcore critiques who have interpreted his actions differently. Therefore, he remains relevant to today’s world despite not being in public service. He is still an important public figure who still shares his thoughts on where the economy is heading.
Alan Greenspan was born on 6 March 1926 in the Washington Heights area, New York City in the United States. His father was a market analyst working in New York City, which might have served in the development of his interest in economics at an early age. At a young age, Alan Greenspan proved his excellence in mathematics through solving complicated mathematics problems in his head. He also had an interest in music and played the clarinet and saxophone, he even went ahead to join Juilliard school where he mainly studied the clarinet before he joined the New York University in 1945. He achieved his bachelor’s degree in economics in 1948, master’s degree in economics in 1950 and Ph.D. in the same line of career (economics) in 1977. He is a proud New York University alma mater having earned all his degrees there (Raveendra 27). He tried pursuing advanced economic studies from the Colombia University but dropped out. However, what he learned from the New York University helped him with his economic career for years to come.
The early 1950s were important in Alan Greenspan’s life. This is when he met and married his first wife Joan Mitchell. Unfortunately, the marriage lasted for less than one year before they annulled it. Still Joan was instrumental to his economic career as she introduced him to Ayn Rand, a famous novelist and philosopher who shaped his way of thinking. Originally, a logical positivist, Ayn slowly converted him into accepting her philosophy of objectivism, which he has held onto all through (Sidney). They also became very close friends until her death in 1982. She continually teased his reserved attitude and nicknamed him the undertaker. He even had the privilege of reading her book Atlas Shrugged while Ayn was still writing it, which was a great honor. Lately however, Harry Binswanger has criticized him quite a lot during his tenure as Federal Reserve Chairman for straying from his Objectivism ideals. Greenspan, however, explained that compromises were necessary in a democratic society, and he really had no choice in his post (Jerome 81).
Alan Greenspan started his economic career even before he graduated. While still pursuing his studies at the New York University, he got a job in the research department of Brown Brothers Harriman-a Wall Street Investment Bank. He worked under the guidance of Eugene Banks, who was the managing director, during this time after graduating summa cum laude in 1948; he was employed as an economic analyst in a New York Think-Tank, National Industrial Conference Board. In 1953, he formed an economic consulting firm known as Townsend-Greenspan & Co. where he served as chairperson and president for the next 33 years. In 1967, he was one of Richard Nixon’s presidential campaign advisers and coordinators, both at the nomination stage and the actual presidential campaign. He remained one of Nixon’s most valued advisers through his presidential administration although he declined any sort of formal appointment then.
Meanwhile, he was serving as a corporate director for a number of different companies: Pittston Company, Mobil Corporation, Aluminum Company of America (Alcoa 34), General Foods, Automatic Data Processing, J.P. Morgan and Company, ABC Incorporation/Capital Cities and Morgan Guaranty Trust Company. Between 1974 and 1977, he served on the Council of Economic Advisers as chairperson under the then president, Gerald Ford. During this time, he was instrumental in reducing inflation rate from 11 percent to 6.5 percent because of the policies he continually supported. In 1977, however, he redirected his efforts back to his firm in New York. He also took a job at his former school New York University as a professor, even as he pursued his Ph.D. He served as the director of a foreign relations organization, the Council on Foreign Relations between 1982 and 1988. He was also in the group of thirty, a very influential advisory body, in 1984 (Charles 221).
On 11 August 1987, Alan Greenspan became the chairperson of the Federal Reserve System Board of Governors, which can be said to be his most important position in serving the public. Federal Reserve System also known as The Fed does the work of controlling the money creation and influencing interest rates, and by so doing, The Fed controls the prices of assets (financial market) from fluctuating (Larry & Alan 67). Examples of these assets are bonds and stocks. The Fed was created in 1913 by Congress to be lending last resort to the banks in the form of temporary loans as it was found out that the failure of one bank would affect other financial institutions resulting to collapsing of the general financial market. This was to be avoided at all cost.
Alan was faced with this kind of crisis of the financial markets. This happened to the lowering of the Dow Jones Industrial Average by up to 17 percent and no October 19 the same year, a day commonly known as “Black Monday”, sellers of shares dumped millions of them collapsing the market with over 500 points (David 101). The buyers who had purchased the shares on margin and used the stock as the collateral were required to provide another form of collateral due to decline in the prices of shares, which made them sell their shares. This resulted to the biggest single-day decrease in the prices of stock in the history of United States with more than 20 percent of the wealth of New York Stock Exchange disappearing in one night. The dealer brokers and the brokerage firms who acts as intermediaries in the stock exchange markets were also negatively affected as both foreign and domestic banks withdrew their loans from them, and hence most of these securities firms suffered liquidity crisis and did not have the capital required to continue operating.
According to most economists, the biggest flaw in the policies of Greenspan towards the prices of the assets was that the Federal Reserve was cutting the interest rates when the prices of the assets fell but never raised the interest rates when the prices were high (Justin 32). Alan took a quick action, held a meeting with top officials of Fed, and came up with a strategy to reduce the liquidity crisis using the reserves of The Fed to boost the worst hit financial institutions. On 29 October 1929, the “Roaring Twenties” bull market collapsed but the Fed provided short-term liquidity, which the effect from affecting other institutions through financial panics. A similar financial panic was arising in 1986 due to the rise of Fed budget deficit up to $221 billion, which led to the collapsing of many federally insured institutions (Steven 88). Greenspan survived through the financial panic and made it clear that his priority was fighting against inflation. President Bush reappointed him in 1991 to another term as the chairperson of The Fed. Clinton also reappointed him in 1996 to another term in the same position although their financial policies differed.
Greenspan was still relevant even after leaving the Federal Reserve in 2006. On leaving the Federal Reserve, his first immediate action was the formation of Greenspan Associates L...