The standard story of his Fed tenure is deficient because it ignores the major transforming event, which is disinflation.
ROBERT J. SAMUELSON
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Feb. 13, 2006 issue - No man's reputation is safe on his retirement, and so it is with Alan Greenspan's. History's verdict will await subsequent events that reveal the long-term consequences of his 18 years as chairman of the Federal Reserve. But until then, it's silly to discount (as The Economist recently did) his apparent accomplishments. Doubters should consult standard economic statistics covering his tenure since 1987:
The U.S. economy (gross domestic product) has expanded 72 percent, and its growth rate has outstripped that of virtually every other advanced country.
The number of payroll jobs increased by 32.1 million (31 percent) from August of 1987 (Greenspan's first month) to December 2005.
There have been only two brief recessions, those of 1990-91 and 2001, lasting a total of 16 months.
Business productivity has risen about 50 percent since 1987.
Interest rates dropped from 8.39 percent on 10-year Treasury bonds and 9.31 percent on 30-year mortgages (1987 averages) to 4.5 percent and 6.1 percent.
The Dow Jones industrial average quadrupled from 2,680 on Greenspan's first day (Aug. 11) to 10,919.
The tricky question is how much credit Greenspan deserves. Not all, of course. The U.S. economy's vibrancy and flexibility (a favorite Greenspan word) explain much. But some credit, for sure. Two months into Greenspan's tenure, the Dow Jones industrial average plunged 22.6 percent on a single day (Oct. 19). By lowering interest rates, the Fed helped avert a crisis of confidence. Something similar happened in the 1997-98 Asian financial crisis. Easier money helped sustain the U.S. expansion—and prevent a global slump. So goes a standard accounting of Greenspan's stewardship.
It's deficient. What it omits is disinflation, the decline of inflation from 13.3 percent in 1979 to today's low levels. Disinflation has been a transforming, if underappreciated, economic event. Among other things, it partially explains: the bull market of 1982-2000 (in August 1982, the Dow was as low as 777); the U.S. consumption boom (since 1982, the personal- savings rate has fallen from 11 percent of disposable income to zero); huge trade deficits, and the recent housing boom.
High
