Saturday, May 22, 2004

“Entranced by sound” at an early age, 78-year-old Federal Reserve Chairman Alan Greenspan confided to an assembly of teenagers the other day that when he was their age, he visualized himself “playing with the likes of the Glenn Miller orchestra or becoming another Benny Goodman.” After practicing the clarinet and saxophone for three to five hours a day, young Alan graduated from high school and toured the country with a dance band for a couple of years. Forsaking a career as a professional musician, Mr. Greenspan enrolled at New York University, where he received his B.A., M.A. and Ph.D. in economics. On Tuesday, President Bush followed through on a commitment made last year and renominated Mr. Greenspan to another four-year term as chairman of the Fed, which he has headed since the summer of 1987.

Mr. Greenspan undoubtedly would be the first to say that the music industry easily managed to survive and prosper for more than half a century without him. But it is quite unlikely that the American and world economies would have experienced such good fortunes as they have over the past 20 years were Mr. Greenspan not leading the world’s most powerful central bank for nearly all that time. Indeed, within months of assuming the chairmanship, Mr. Greenspan successfully confronted 1987’s “Black Monday” stock-market plunge, which, if handled improperly, could easily have plunged the nation and the world into a deep recession.

“Deep recession”? Now, “deep recession” is a phrase one never associates with Mr. Greenspan. To the contrary: His 17-year tenure at the Fed’s helm has been associated with the two longest peacetime economic expansions since the 1850s. Moreover, the two eight-month recessions that ended these record expansions were among the briefest, most mild downturns throughout the same 150-year period. The cyclical peaks of the unemployment rate for the 1973-75 and 1981-82 recessions reached 9 percent and 10.8 percent, respectively, compared to 7.8 percent and 6.3 percent in the aftermath of the much shallower 1990-91 and 2001 recessions.

The Asian financial crisis of 1997-98 nearly brought the world economy to the precipice, a potentially catastrophic development that Mr. Greenspan principally averted. He continued to guide the American economy through a major expansion during the second half of the 1990s. That record-shattering expansion served as the world economy’s indispensable engine, keeping Japan’s struggling, once-invincible economy above water and providing a market for Europe’s export-driven acceleration. In recent years, Mr. Greenspan and his Fed colleagues have managed to achieve de facto price stability, succeeding so well that disinflationary pressures threatened to evolve into outright deflation. In recent months, however, he has achieved apparent success in defusing the deflationary threat.

Mr. Greenspan has managed to successfully deal with all of these potential and actual crises while guiding the U.S. and world economies through an evolving economic paradigm that, in his perceptive view, has been “encompassing globalization and innovation far more than in earlier decades.” Considering the complicating factors involving September 11, the corporate-governance scandals and the stock-market and business-investment collapses, Mr. Greenspan has performed all the more remarkably in recent years. Knowing he plans to remain Fed chairman at least through his 14-year term, which ends Jan. 31, 2006, should be a source of comfort to one and all.

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