Remarks by IMF Managing Director Rodrigo de Rato at the Farewell Dinner for Alan GreenspanIMF Headquarters, Washington, D.C.
January 24, 2006
1. I would like to welcome everyone, and especially our honored guests, Alan Greenspan and his wife Andrea Mitchell.
2. We are here to celebrate the career of Alan Greenspan, who for almost 20 years has been the Chairman of the Board of Governors of the Federal Reserve System. It is a measure of Alan's accomplishments that we think of this period as "the Greenspan era": not everyone merits an "era". I'd like today to recall a few of Alan's achievements, and to pose the question: what can we learn from his magnificent career.
3. Before I begin though, I would like to share with you some messages from Michel Camdessus, Horst Köhler and Stan Fischer, who were prevented by other commitments from being with us tonight. Michel Camdessus asked me to convey his deep gratitude for Alan's untiring efforts and unwavering support for the IMF during the difficult years of the Asian and Latin American crises, and through the process of bringing Eastern Europe and the former Soviet Union into the market economy. I will pass on to Alan the full text of Horst Köhler's letter to him, but to quote from it, Horst says "Not only have you been a key contributor to the current success story of the US economy as well as to the stability of global financial markets and the world economy, you are also in a class of your own when it comes to combining wisdom and wit."
4. Stan Fischer regrets that he and Rhoda cannot be here, especially as, to quote Stan:
"This would have been the perfect occasion to ask a few key questions, like, `Should I have believed the standard Larry Summers argument of last resort: `Well, Alan doesn't agree with that.' on all the occasions on which it was deployed?' `Do you still play the clarinet?' `Do you recall ever accepting any of the advice the Fund offered to the Fed in our annual Article IV lunch?' `How do you say `irrational exuberance' in Hebrew?'"
Stan's email goes on to say:
"You are an inspiration to central bankers everywhere: as we were struggling with our interest rate decision yesterday, my colleagues and I discussed what had led you to refrain from raising rates in 1995, and whether we were in a similar situation. We decided we were not, and raised the rate. But there is no doubt we and many others will continue for many years to try to draw lessons from the remarkable Greenspan years. As I write this email, a headline to the side says "Greenspan retiring with folk-hero status", and that must be true-and even better, it is absolutely and totally deserved. Thank you for everything you have done-and best wishes to you and Andrea as you start your next career."
5. Stan's email reminds us that there are many reasons to envy Alan: not just his economic savvy and ability to move financial markets with a few well-chosen words, but also his beautiful and talented wife, and his musical ability. I am reminded that as a teenager, Alan jammed with Stan Getz, the great jazz musician who later helped to bring samba to North America. In the 1940s, the man we now call Chairman Greenspan was a student at Julliard for a while, before abandoning classical music to play tenor saxophone in a big band. Just a
year later, almost exactly the same path was followed by the legendary jazz trumpeter Miles Davis. I don't know if Alan has any regrets about his later choice of career, but I think that the world has many reasons to be thankful that while Miles Davis stuck to jazz, Alan Greenspan turned to economics.
6. As Chairman of the Federal Reserve Board, Alan Greenspan has had a remarkable record. During Alan's tenure, the United States has experienced two decades of low inflation, and the Fed has been successful in lowering inflationary expectations. Combined with improvements in productivity, which Alan was among the first to recognize, this helped produce the two longest economic expansions on record. Moreover, the recessions which followed were mild: the Greenspan Fed has been remarkably adept at managing soft landings, despite the turbulence of the world around it.
7. Alan also has an impressive record on the international stage. He has been a consistent friend and ally of the Fund. He has been a consistent foe of protectionism, and I hope he will continue to be active in opposing protectionism in the months and years ahead. He has played a quiet but influential role in crises ranging from Mexico and Korea in the 1990's to Brazil more recently, and he has always shown deep understanding of the links between the U.S. and global economies.
8. Alan Greenspan is not noted for his brilliant prose and inspiring oratory. His utterances have been described as "Delphic" and he once said, "I guess I should warn you. If I turn out to be particularly clear, you've probably misunderstood what I said." But I think that Alan is not doing himself justice here. A man whose words can move markets needs to be careful what he says, and Alan can be clear when he wants to, as in October 1987, when on the morning after the largest one day fall in history in the U.S. stock market, Alan Greenspan, who had been at the Federal Reserve Board for less than three months, issued a one sentence press release that read: "The Federal Reserve, consistent with its responsibilities as the nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system." The statement was a crucial element in a strategy which averted financial panic.
9. Alan also has a great capacity to explain and to teach. It sometimes seems to me that ordinary people understand him better than policy makers, and perhaps this is one of the reasons for his lasting influence. He is also generous with his time. I first visited him in 1997, and returned each year. During this period he clearly explained the changes in the US economy due to productivity and its effects on growth. More recently I have listened carefully to what he has said about the need for flexibility in economies, and I hope others will too. It is also worth noting that Alan Greenspan was the first chair of the Fed to issue statements that explain the Fed's decisions on interest rates and offer guidance on how they will move in the future. I would like to call to your attention two events that took place in June 2004. First, I came to Washington. Well, we will have to wait and see what is the historical significance of that. Second, Alan Greenspan began to raise interest rates and to explain to the public how the process would unfold. We can already see the historical significance of that, not only for US economy but for central banks all over the world, who also now rely on transparency about their intentions, rather than surprises, to influence economies.
10. But Alan Greenspan will be remembered most for his actions, and in particular for his orchestration of rises and falls in key U.S. interest rates. How can one explain his remarkable success in guiding the U.S. economy? I think a number of elements can be identified.
11. Alan Greenspan has a remarkable capacity for thorough analysis and intellectual rigor. Alan is a master of asking the right questions, and has an extraordinary understanding of the relationships between the financial sector, macroeconomics and microeconomics. When you spend ten minutes with him, he will talk for half that time about issues that people face in business and everyday life. He is also a man of the data, spends hours studying it, and puts enough faith in his studies to question accepted wisdom and change his mind sometimes. This attention to detail paid off when Alan identified a trend toward increased productivity that was not captured in the existing data, set in motion work to explore it, and persuaded his colleagues that this new information should be reflected in the conduct of monetary policy. The decision is credited with avoiding a needless curtailment of the economic expansion of the 1990s. But what I find remarkable is the capacity for original research and intellectual development in someone occupying a tremendously demanding job. I salute you.
12. Alan also has a finely tuned sense both of politics and of markets. It's not possible to survive for twenty years in Washington, and to win the confidence of four presidents, without an extraordinary grasp of politics. And Alan has demonstrated repeatedly his command over markets, most notably when a nicely timed quarter point reduction in interest rates in 1998 turned around a panicky bond market.
13. The final attribute that I would identify is perhaps the most important of all. It is Alan Greenspan's unwavering focus on the long-term interests of the U.S. economy. This was evident even before Alan came to the Fed, in his work as Chairman of the National Commission on Social Security Reform. Since becoming Chairman of the Fed, Alan has always put the long term health of the economy first. He has resisted pressure from politicians with shorter time horizons, and has been prepared to make even Presidents unhappy. President George H.W. Bush at one point blamed the Fed for his loss of the 1992 election, and President Clinton's staff occasionally vented their frustration on television. But despite the anger of powerful men, Alan Greenspan has patiently, steadfastly, pursued the goals of preserving low inflation, financial stability, and the health of the economy. And he has often been effective in influencing the politicians.
14. Of course, Alan has not solved all of the problems of the world or of the United States. There will be many issues, and many economic puzzles, for his successor to grapple with. Alan has drawn attention to some of these himself: to the "froth" in the housing markets, to the dangers posed by large current account balances, to the need for fiscal restraint, especially with an aging population. However, his successors at the Fed and his colleagues in the administration can draw inspiration from Alan Greenspan's example.
15. I believe that we in the Fund can learn from him too. As we go forward in the next few months with our medium-term strategy, we should remember the importance of deep analysis and intellectual clarity. We should be aware of the political winds, but look to ride them rather than be driven by them. And we should remember our own responsibilities, as the only global monetary institution, to promote financial stability in the world economy. I hope that in the weeks ahead we can draw on Alan's vision and strength: to have well-informed and serious discussions about what the Fund should be doing, and to be prepared to act in the interests of the institution and of the membership as a whole. Finally, to conclude on a lighter note, I hope to follow Alan's success in being the Chairman of a Board which always gave him a majority when he asked for it.
16. Alan, I would like to present you with a small gift from us, a collection of photos and of your speeches to the IMFC over your long and distinguished career. I would also like to thank you for your great public service, and thank you for being with us tonight.