Alan Greenspan, the high priest of free-market capitalism and former Federal Reserve chairman, has died at the age of 100. For those of us who lived through the Volcker shock and the Great Moderation, his passing marks the end of a financial epoch. Greenspan was the man who believed, with almost religious fervour, that markets were self-correcting. His legacy is a mixed bag of economic miracles and catastrophic blind spots.
Greenspan took the helm of the Fed in 1987, inheriting a system still reeling from the inflationary 1970s. His first major test was Black Monday in October 1987, when stock markets crashed. He responded with liquidity, proving his mantra: the Fed's job was to grease the wheels of capitalism, not to second-guess them. Under his watch, inflation was tamed, productivity soared, and the US economy enjoyed two decades of relative stability. The 'Greenspan put' became market lore: the idea that the Fed would always step in to save asset prices.
But here is where the scepticism creeps in. Greenspan's faith in deregulation fuelled the dot-com bubble and, more damningly, the housing crisis of 2008. He famously dismissed the idea of irrational exuberance in 1996, only to see tech stocks crater. He championed derivatives, believing that sophisticated bankers would manage their own risks. We all know how that ended. His legacy is thus a cautionary tale for fiscal conservatives: markets are efficient until they are not.
For Britain, Greenspan was a critical ally. He supported the UK's economic liberalisation under Thatcher and advised on monetary policy. His ideas influenced the Bank of England's independence in 1997. Yet his death comes at a time when the orthodoxy he represented is under siege. Inflation has returned, gilt yields are volatile, and central banks are rediscovering the limits of their power.
Greenspan was not a man for government spending or fiscal stimulus. He believed that capital flight was a sign of market discipline. His world was one where the bottom line ruled. As we mourn him, we must also interrogate the doctrines he left behind. The market efficiency theory, the deregulation zeal, the faith in monetarism: are they still fit for purpose? Or have we moved into an age where central banks must be more interventionist?
The City of London will tip its hat to Greenspan. But I suspect many will whisper that his era, for all its achievements, also planted the seeds of the 2008 crash. In the end, Alan Greenspan was a giant of finance, but like all giants, he cast a long shadow that obscured some hard truths.