After more than 18 years on the job, Alan Greenspan retires on January 31st as head of the Federal Reserve Board, the independent U.S. central bank. The nearly 80-year-old Mr. Greenspan is being hailed as the most influential central banker ever, with one of his former colleagues saying that Mr. Greenspan's statements came to be as closely scrutinized in financial markets as Mao Tse Tung's declarations once were in China.
It is a record of extraordinary achievement. Over the past 18 years the American economy averaged 3.1 percent annual growth while the average citizen's wealth rose by 300 percent. Inflation came down and stayed low while the jobless total fell to a very low five percent.
Catherine Mann spent a decade working for Mr. Greenspan at the Federal Reserve. She says it is no surprise that Mr. Greenspan is highly respected. "That's because both the U.S. and global economy did extremely well over his tenure,” said the economist. “For the U.S. economy we had almost no slowdown in economic growth up until 2001."
And that slowdown was relatively mild. Mr. Greenspan's skill in calming panicky financial markets was tested on several occasions: from the October 1987 stock market crash, to the late 1990s Asian financial crisis, to the terrorist attacks on New York and Washington in 2001.
Here's what he had to say soon after the latter: "Even a subdued recovery beginning soon would constitute a truly remarkable performance for the American economy in the face of so severe a decline in equity asset values and an unprecedented blow from terrorists to the foundations of our market systems."
It is the responsibility of a central bank to promote economic growth and employment, to keep inflation low, and safeguard the value of the currency. In recent years Mr. Greenspan has repeatedly urged U.S. policy makers to do something about America's huge budget and trade deficits.
"Crafting a budget strategy that meets the nation's longer-run needs will become ever more difficult the more we delay," said Mr. Greenspan to a congressional committee.
Fred Bergsten, the former U.S. Treasury official who heads Washington's Institute for International Economics, says that while Mr. Greenspan did an outstanding job, he also made mistakes.
"I think the biggest one was the stock market excess in the late 1990s,” said Mr. Bergsten, “where he talked about it but didn't do some things he could have to head it off, like raising margin requirements."
Not increasing the margin, meaning requiring stock buyers to use more of their own money to buy shares, allowed more people to buy more equities, thereby driving up demand and prices until they suddenly crashed.
Likewise, critics say that by repeatedly cutting short-term interest rates in 2004 and 2005, the central bank may have created a housing bubble. Since money was cheaper to borrow, more people were able to buy more expensive houses, pushing up demand. Critics say it was similar to the high technology stock market bubble of late 1990s.
Mr. Greenspan will be succeeded by President Bush's top economic advisor, Ben Bernanke.