On Monday, Alan Greenspan died at age 100. The former Federal Reserve Chair spent eighteen and a half years at the helm of the central bank from 1987 to 2006—a total of five terms under four presidents.
As with any death of a prominent figure, the news led many to reflect on Greenspan’s legacy and, in this case, debate how he stacks up with other Federal Reserve chairs. And, although there was plenty of respect for Greenspan as a person from more establishment-friendly sources, broadly, the consensus on his performance as Fed Chair ran from mixed to negative.
Even the tributes and obituaries that leaned the most into the narrative that Greenspan was the so-called “Maestro”—or the brilliant, steady, data-driven, almost priestly public servant who helped engineer a long period of durable growth and low inflation—admitted that the collapse of the housing bubble and “Great Recession” that kicked off shortly after Greenspan left the Fed greatly tarnished his image.
The critics who understand that Greenspan did not merely miss the signs of that impending economic catastrophe but actively created and fueled it were much more scathing in their judgments of his time at the Fed.
However, this entire discussion is flawed. Because it rests on the false assumption that the Federal Reserve and all its intellectual backers in the political class can be taken at their word: that the Fed is an institution that is genuinely capable of and interested in bringing about a stable, growing economy, and, therefore, that a good Fed Chair is someone who simply manages the economy well. That is all a lie.
The Federal Reserve, like every other central bank in history, exists to enrich the political class at the expense of everyone else. It is, and has always been, a state-backed banking cartel that uses the government’s perceived power over the monetary and banking system to remove the limits that market competition places on banks that deceptively create and loan out extra claims to the money deposited in their customers’ accounts. That is, in effect, a major subsidy for state-chartered banks. But it means our money is far less secure than it would be if banks were forced to face that market pressure.
On top of that, in the five decades since the federal government “temporarily” suspended the dollar’s tie to gold—which was a complete political takeover of money—the Fed has allowed the political class to transcend previous fiscal limits and fund their various ballooning federal programs through inflation (or money printing). That has allowed the government to unilaterally impose heavy taxes on the population that are barely noticeable at first, only manifesting later as this accelerating decline in the value of our money.
It has also given government officials the means to artificially lower interest rates. Doing so creates an artificial boom and makes the economy look strong. But it also warps production—decoupling what’s being produced from the wants of end consumers and tricking investors into ignoring the material constraints that make some projects impossible to finish. It is that so-called malinvestment that necessitates painful periods of correction, which we call recessions. So it is the Fed artificially lowering interest rates that traps us in this recurring nightmare known as the boom-bust cycle.
In other words, the Fed is not some wise economic priesthood protecting us from economic trouble. It is the political class’s primary tool for economically ripping everyday Americans off to the benefit of themselves and their well-connected friends in the “private” sector. And, once that is understood, it’s hard to conclude that Alan Greenspan was anything other than the perfect Fed Chair. Because his job was not to bring about lasting economic stability. It was to carry out or even accelerate the Fed’s extortion while keeping the public blind to what was actually going on.
Greenspan was in a uniquely good position to do this well for several reasons.
First, as Frederick Sheehan laid out in his excellent 2010 biography of the man, Greenspan was primarily a social climber. His priority throughout his career was not advancing a specific economic vision or engaging in serious economic scholarship, it was advancing his own personal status. And, as a result, he was happy to adopt or discard economic beliefs as needed to achieve that.
In the world of professional, establishment-friendly economists, there is no position as prestigious as Fed Chair. Greenspan’s willingness to pivot to any doctrine and abandon any previously-proclaimed principle to attain and maintain the prestige that comes with the position gave him a level of flexibility that made him perfect for the role.
Even better, from the Fed-dependent establishment’s perspective, Greenspan had a reputation from his early career for being an advocate of the free market and a proponent of the gold standard. Regardless of whether those beliefs were genuine or a calculated attempt to gain clout in his social circles at a time when Keynesianism was falling a bit out of fashion, Greenspan entirely abandoned that supposed commitment to laissez-faire and sound money as Fed Chair. However, that reputation gave him credibility with people who might otherwise have been suspicious, or even opposed to central banking.
Finally, the other attribute that made Greenspan an ideal Fed Chair was how remarkably boring and unclear he was when speaking about economics. Even before he was in government, when he worked as an economic consultant for Wall Street firms, Greenspan was known to give talks that nobody would understand and few would attend if given the choice.
That, however, is an excellent attribute for a Fed Chair. The political class does not want a lot of public interest in the Fed or dramatic reactions to what Fed officials are saying. Greenspan’s inability to speak in anything but uninteresting and unclear technical jargon helped keep traders from panicking at an offhand comment, and it fed the impression that monetary policy is closer to engineering than it is to politics. And further, that the Fed board was navigating those important but boring engineering problems in ways few could even understand.
Together, Greenspan’s willingness to adopt and abandon economic beliefs and principles on a whim, his reputation as a proponent of sound money, and his ability to say nothing of substance in the most unexciting way possible gave the Fed the room it needed to dramatically accelerate its inflationary monetary policy. The Fed was able to keep interest rates artificially low for years under Greenspan. And it was during the Greenspan years that the central bank had the room to bring about our current era of “financialization,” where asset markets are primarily driven by expectations of future Fed policy and financial firms enjoy access to a level of government bailouts not seen anywhere else in the economy.
However, the party can never last forever. When the economic house of cards built up by decades of low interest rates collapsed in 2008, Greenspan’s public reputation suffered. But even that was useful. It made him a convenient scapegoat for those who wouldn’t buy the argument that the Fed played no role in the crash. So now, if the Fed deserved any blame for the recession, it was, at most, because Greenspan made a few mistakes as Chair rather than being the predictable result of decades of escalating inflationism that had started long before his term.
That meant that, while Greenspan the man faced some vague personal blame for the downturn from some corners, the philosophy that drove the Fed during his tenure survived the Great Recession and continues to drive the Federal Reserve to this day. He served his true role perfectly.
