Alan Greenspan packs up his bags today and says farewell to the job he’s held for the past 18-1/2 years. By several measures, he’s leaving the financial system of the United States in better shape than he found it. The standard inventory of accomplishments on the maestro’s watch includes lower inflation; milder and less frequent recessions; and greater transparency in the business of managing the nation’s money supply.
Call us crazy, but that’s progress by any reasonable definition of enlightened and successful central banking. That said, the maestro’s hardly escaped criticism. Whether it’s the rising trade gap, the march of red ink on the government’s balance sheet, or consumer spending run amuck (by some accounts), critics find much to question. The Fed, of course, has a fairly limited mandate, and relatively few tools at its disposal. As such, we can argue about what exactly is, and isn’t, relevant for assessing a Fed chairman’s record. But this much is clear: Greenspan leaves his successor, Ben Bernanke, with a thicket of rising challenges for which there are no obvious or easy answers in the deployment of the traditional levers of central banking.
For all the triumph that surrounds the retelling of Greenspan’s tenure over the past generation, it’s less than clear that the Fed and its counterparts around the world will be as successful in managing what awaits. The challenge is compounded by the fact that the world is arguably too dependent on the American consumer, an economic force that will be increasingly threatened by its penchant for assuming ever greater piles of debt. Adding to the uncertainty is the fact that Greenspan leaves his replacement with no obvious blueprint for running a central bank. The man who today exits the most powerful job in global finance with his reputation intact has become notable for being a nimble steward of monetary management, espousing no central theorem or rules of play.