Alan Greenspan, the man who presided over the American economy for nearly two decades, has died at the age of 100. His passing marks the end of an era, but for those of us who watch the markets from the City, his legacy is a cautionary tale of monetary hubris. Greenspan was the maestro of the Federal Reserve, a man who believed in the power of markets to self-correct.
He left behind a record of low inflation and high growth, but also the seeds of the 2008 financial crisis. His policy of keeping interest rates too low for too long fuelled a housing bubble that ultimately burst, leaving taxpayers on both sides of the Atlantic to pick up the pieces. Meanwhile, British fiscal prudence, though often mocked as boring, has endured.
We do not need to remind ourselves of the gilt-edged stability that comes from a conservative approach to public finances. The contrast could not be sharper: Greenspan’s legacy is one of volatility and excess, while Britain’s steady hand on the tiller has preserved the value of the pound and the confidence of investors. Capital flight may always be a risk, but it is less likely when the central bank keeps its head.
Rest in peace, Mr. Greenspan. Your free market idealism was a noble experiment, but the bottom line is that prudence pays.