WASHINGTON, 31 January 2006 (RFE/RL) - Greenspan's tenure at the Fed did not begin auspiciously.
First, no one expected Greenspan to match the skill of his predecessor, Paul Volcker, who had a reputation for tough-minded fairness and had presided over a period of economic growth that is now the second longest in U.S. history. Second, six weeks after he took the job -- on 19 October 1987, or "Black Monday"-- the U.S. stock market crashed, losing 23 percent of its value.
A Worthy Successor
But Greenspan showed he was a worthy successor to Volcker. He quickly took an activist response to the disaster, offering loans to any bank or other financial institution that was severely harmed by the crash.
But Greenspan did more than help the United States. Because it is the biggest in the world, the American economy has an enormous impact elsewhere. And by keeping the American economy stable, Greenspan indirectly helped the world economy.
For example, Greenspan's decision to cut interest rates in 1998 not only helped protect Americans from the Asian-Russian currency crisis, but also helped restore stability to those economies. That's according to Allan Meltzer, a professor of economics at Carnegie Mellon University in the eastern state of Pennsylvania.
Pulling The World Out Of The 1998 Russia-Asia Crisis
Meltzer tells RFE/RL that the lower interest rates created a great demand for goods in America, including imported goods, because companies and consumers could afford to borrow money to pay for them. This, he says, rescued a badly sagging world economy, particularly the Asian economy:
"The borrowing paid for the imports that the United States bought from countries that were suffering from deep recessions and pulled them out of those recessions," Meltzer said.
James Millar agrees. Millar is a professor of economics and international affairs at George Washington University in Washington. He says the global results of Greenspan's efforts go beyond the Asian-Russian monetary crisis.
Millar says the former Soviet-dominated countries owe a debt to Greenspan, to varying degrees, because of the more direct effect that the U.S economy has had on Western Europe.
Helping Eastern And Central Europe
Millar says the benefit for Eastern and Central Europe is more pronounced because of the direct trade they have with the West. As for Russia, he says, it has benefited, too, although to a lesser extent.
"East-Central Europe depends very heavily upon how well Europe is doing," Millar says. "If Europe is benefiting from U.S. policies, then so will Eastern Europe and Central Europe. And to some extent, I'd say, Russia benefited as those economies grew because, of course, they sell gas and oil to Europe."
Both Millar and Meltzer say the benefit of Greenspan's policies went far beyond the old Soviet sphere of influence. They point to China as a prime example. The United States accuses China of keeping its currency, the yuan, artificially low, thus making it unfairly competitive in world trade.
Despite this dispute, according to both Millar and Meltzer, China has been one of the chief beneficiaries of Greenspan's policies because, along with the devalued yuan, they make Chinese products more affordable to Americans.
A Political Player
Greenspan's performance wasn't the only factor in his longevity. Millar says he has been very political in a position that's supposed to be nonpartisan. Although the outgoing Fed chairman is a professed fiscal conservative, he says, he's been known to deviate from that principle to please a president.
"He bent to the political wind, wanted to keep his job," Millar says. "So he supported a tax increase for Clinton and he supported a tax cut for Bush Second [George W. Bush]. And all along he's been really quite conservative -- pro-business, antigovernment."
Meltzer agrees that Greenspan is adept at navigating Washington's political waters, but he says he doesn't believe the Fed chief has ever sacrificed his principles merely to please a president and keep his job.
"Nobody in Washington can survive if he's not political," Meltzer says.
Meltzer says Greenspan simply supported Clinton's tax increase in the 1990s because he believed it was the right policy at the time.
Greenspan will be succeeded on 1 February by Benjamin Bernanke, now a White House economics adviser to Bush. For those who approve of Greenspan's monetary policies, Bernanke will be a welcome successor because he describes himself as a Greenspan disciple.
Caspian Energy Special
For a complete archive of RFE/RL's coverage of energy issues in the Caspian Sea region and Russia, click here.
HOW MUCH OIL? The U.S. Energy Information Administration has estimated that the Caspian could hold between 17 billion and 33 billion barrels of proven oil. ("Proven reserves" are defined by energy experts to be 90 percent probable.) Other experts estimate the Caspian could hold "possible reserves" of up to 233 billion barrels of oil. ("Possible reserves" are considered to be 50 percent probable.) By comparison, Saudi Arabia has 261 billion barrels of oil and the United States 23 billion...(more)