Alan Greenspan, the man who would eventually lead the world’s most powerful bank, the US Federal Reserve, was eager to join Richard Nixon’s presidential campaign back in 1967. At the time, he was 41 years old and already a prosperous Wall Street consultant. But Greenspan was developing political ambitions, not least because he suspected that power and perhaps glory lay in Washington, DC. Writing in the midst of riots in cities like Detroit and Newark, he offered Nixon his thoughts on how to harden his campaign’s plank. The source of the unrest, Greenspan explained in a letter quoted by Sebastian Mallaby in his new biography, The Man Who Knew, was apparently not economic disadvantage but rather the federal government’s antipoverty programs. “They have the ultimate effect,” Greenspan wrote, “of only degrading the Negroes as individuals and have led to the current upsurge in racism and class antagonism.”
Later in the campaign after Martin Luther King Jr. was killed, Greenspan sent Nixon another missive. Robert Kennedy, then a Democratic presidential hopeful, had given an emotional speech about the challenges of racial justice and calling for compassion for those who suffer in our economy. Greenspan was furious. Kennedy, he complained to Nixon, was “attempting to cash in on the tragic events of recent days by fostering guilt among the whites and accordingly presenting himself as a moral leader.”
These two anecdotes are telling. Even as Greenspan started to move into the hard-nosed realm of politics, he never completely left behind his rigid ideological commitments to libertarianism, which he had developed as a young man. Despite Mallaby’s best efforts to show otherwise, much of Greenspan’s career as a public figure was defined by the individualistic fantasies and persistent biases against government spending and regulation that he shared with Ayn Rand and economists like Milton Friedman.
Mallaby, a right-of-center economics commentator and former contributing editor to the Financial Times, doesn’t find many problems with Greenspan’s free-market views. But his new biography does offer some useful insight into how Greenspan’s libertarian ideals often came into conflict with his persistent ambition to rise to the top of Washington’s policy-making establishment. To do so, Greenspan had to make a lot of compromises. This was the good news, at least for America, and it was almost always the good news for his career as well. Greenspan showed a talent for suppressing his idealism when necessary. His dream had been to become secretary of the Treasury. By becoming chairman of the Fed and the most powerful policy economist of his time, Greenspan exceeded his goal.
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After the crash of 2008 and the recession that followed, some may forget how exalted Greenspan’s reputation as an economist once was. In the wake of 2008, many came to believe that he’d been a principal culprit in the crash. Greenspan, in fact, publicly blamed himself, admitting in congressional testimony that many of his economic ideas—including his “model” of the economy—had failed. But until 2008, Greenspan was widely admired for as policy-maker, in particular for sharply reducing inflation while sustaining economic growth. Mallaby’s biography spends a considerable amount of energy confirming this mainstream view: that until the crash, Greenspan had successfully steered the US economy during his almost 20-year tenure at the Fed.