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CandleFocus Glossary Editor
Alan Greenspan is one of the most influential economists in American history and is known for his long tenure as Chairman of the Federal Reserve from 1987 to 2006. Prior to his appointment, Greenspan served as Chairman of the Council of Economic Advisors in the Reagan Administration. During his time at the Federal Reserve, Greenspan implemented a policy known as the Great Moderation, leading to sustained low inflation and steady economic growth during his 19-year chairmanship.
The Great Moderation had remarkable benefits for the US economy. From 1984 to 2007 inflation in the US was consistently lower than the long-term average and GDP growth averaged 3.2 percent annually. The expansionary monetary policy Greenspan implemented, however, is also seen as partly responsible for the 2000 dot-com bubble and 2008 financial crisis. After the crash of 1987, Greenspan initially increased the money supply in an attempt to soften the blow, a move that some say created a false sense of security and fed the subsequent speculation.
Greenspan was known as a hawkish inflation hawk who was primarily concerned with controlling prices, often to the detriment of full employment targets. While inflation had been kept low throughout his tenure, employment measures such as wages, unemployment and job-growth rate not seen corresponding increases. Greenspan’s interest rate cuts of over 50 basis points between March 2001 and June 2003, although effective in boosting consumption, created the conditions for the build-up of debt and the eventual financial crisis.
Alan Greenspan’s legacy is a complicated one. His monetary policies were largely successful in maintaining growth and low inflation, but at the cost of increased volatility, bubbles and financial instability. Greenspan popularized the idea of short-term economic cycles, based on the notion that economic instability can be remedied with quick adjustments to monetary supply and interest rates. However, his actions during his tenure at the Federal Reserve marked a cultural shift towards laissez-faire economic policies and arguably decreased the level of oversight on Wall Street.
The Great Moderation had remarkable benefits for the US economy. From 1984 to 2007 inflation in the US was consistently lower than the long-term average and GDP growth averaged 3.2 percent annually. The expansionary monetary policy Greenspan implemented, however, is also seen as partly responsible for the 2000 dot-com bubble and 2008 financial crisis. After the crash of 1987, Greenspan initially increased the money supply in an attempt to soften the blow, a move that some say created a false sense of security and fed the subsequent speculation.
Greenspan was known as a hawkish inflation hawk who was primarily concerned with controlling prices, often to the detriment of full employment targets. While inflation had been kept low throughout his tenure, employment measures such as wages, unemployment and job-growth rate not seen corresponding increases. Greenspan’s interest rate cuts of over 50 basis points between March 2001 and June 2003, although effective in boosting consumption, created the conditions for the build-up of debt and the eventual financial crisis.
Alan Greenspan’s legacy is a complicated one. His monetary policies were largely successful in maintaining growth and low inflation, but at the cost of increased volatility, bubbles and financial instability. Greenspan popularized the idea of short-term economic cycles, based on the notion that economic instability can be remedied with quick adjustments to monetary supply and interest rates. However, his actions during his tenure at the Federal Reserve marked a cultural shift towards laissez-faire economic policies and arguably decreased the level of oversight on Wall Street.