February 06, 2006, 9:15 a.m.
Greenspan’s Final Grade
Not bad. Not great.

By Jerry Bowyer

Alan Greenspan retired last Tuesday after serving more than 18 years as chairman of the Federal Reserve. While many credit Greenspan for the booming economy of the late 1990s, his term should be evaluated on how well he fulfilled his core duty: maintaining the value of the dollar. When judged against that goal, the Maestro’s record is mixed.

The CRB Spot Index is an inflation index based on 22 commodities and prepared daily by the Commodity Research Bureau. As the chart above shows, former Fed chairs Arthur Burns and G. William Miller both tried (and failed) to fight the pervasive inflation of the 1970s. Paul Volcker, who took over at the Fed in 1979, put an end to it in the early 1980s.

Greenspan’s term, however, has been littered with moderate policy overreaction. After countering the so-called “irrational exuberance” of the late 1990s with several interest-rate hikes in late 1999 and early 2000 (which helped lead the economy into recession), Greenspan underrated the power of President Bush’s tax cuts and overly decreased interest rates in an attempt to loosen the money supply and stimulate the economy further. This led to inflation, which has since been countered with 14 interest-rate hikes and counting.

If recent history is any guide, Greenspan’s final policy run will probably turn out to be another overreaction.

— Jerry Bowyer is the author of The Bush Boom and an economic advisor to Independence Portfolio Partners. He can be reached through www.BowyerMedia.com.