Greenspan is set to claim role in history
By RICHARD STEVENSON
Just before 9 am today, if tradition holds, Alan Greenspan will stride through a doorway behind the desk in his private office and into the Federal Reserve's ornate board room. He will take his seat at the head of the eight-metre-long mahogany and granite table and then, for the 91st time in his 11 years as chairman of the central bank, call to order a meeting of the Federal Open Market Committee, the group that sets interest rate policy.
The process is almost ritualistic. But with much of the world reeling from the financial shocks set off last year in Asia, and with the markets and the economy at home in flux, the situation now confronting Dr Greenspan and his colleagues is anything but predictable.
Greenspan ascended to icon status through his success at the monumental, but well-defined, task of extinguishing inflation. The question now is whether he can guide policy as successfully through a period in which both the economy and the threats to it are changing with blinding speed.
At stake is a business expansion in the United States that in December will become, at seven years and nine months, the longest in the nation's history, aside from the 1960s boom fuelled by spending on the Vietnam War.
For Dr Greenspan, there is also a legacy at stake. He is 72. And though he has not indicated whether he wants to be reappointed when his current term, his third, expires in the summer of 2000, today's economic crosscurrents have created a challenge whose outcome will shape how he is remembered in the history books.
Just what is Dr Greenspan thinking? He rarely answers questions directly, as anyone who tries to parse his public comments soon discovers. So his is a mind that economists, investors and politicians have been trying to read since he was appointed in 1987.
They have learned to pick up any major shifts in policy - and, often, to guess the next interest rate move. The guessing now is that he intends to trim rates by another quarter-point, to ensure that the gradual economic slowdown does not become a recession.
But in his speeches and private conversations with economists and Government officials in the past few years, Dr Greenspan has also been laying out a broader and still-evolving framework for his thinking.
At its heart are the financial markets. Where Dr Greenspan once became obsessed with small-bore indicators of clues to emerging inflationary bottlenecks, he now cites the spread between ultra-safe Treasury bonds and corporate debt to illustrate his concern that investor psychology could derail the economy.
Long viewed as a single-minded, perhaps narrow-minded, inflation fighter, Dr Greenspan has been careful not to suggest any diminution of his commitment to price stability. But with inflation receding, he has also become more fascinated with how advances in technology affects the economy - and how the combination of technology and more powerful markets can instantly bring prosperity or wreak havoc around the world.
Productivity growth, a key to better living standards, appears to be improving, in Dr Greenspan's view, reflecting a delayed pay-off from the huge investments by business over the years in computers and other new technology. Elements of the economy that are most prone to recession-inducing imbalances - like industrial capacity and inventories - can now be managed much more efficiently, he believes, helping to dampen the business cycle.
But while the finances of both businesses and individuals are tied more closely to the markets than ever, even the most powerful policy makers can do little to control the markets, Dr Greenspan contends.
His bottom line is this: Global forces are making monetary policy trickier, but they are advancing a sometimes painful, yet ultimately beneficial, shift toward market capitalism - a cause he has promoted since his days as a saxophone-playing disciple of Ayn Rand in the 1950s.
''For good or ill, an unforgiving capitalist process is driving wealth creation,'' Dr Greenspan said in a speech earlier this year. ''It has become increasingly difficult for policy makers who wish to practice, as they put it, a more 'caring' capitalism to realise the full potential of their economies. As a consequence, increasingly, nations appear to be opting to open themselves to competition, however harsh, and become producers that can compete in world markets.''
Dr Greenspan has as many critics as ever. Some think that he continues to focus unduly on inflation at the expense of jobs and higher wages, and that his failure to cut US interest rates sooner has exacerbated the global crisis. Others think that in his fixation on the markets, he is paying too little attention to warning signals of inflation.
Another group thinks he is drawing sweeping conclusions from what is no more than a temporary period of good economic luck. The rise of left-leaning governments in Western Europe challenge his conclusions about economic history.
Dr Greenspan, of course, does not set policy by himself, and his colleagues at the Fed have their own ideas, but his evolving thinking helps explain why the Fed stayed largely on the sidelines in the past few years as the US economy exceeded the ''speed limit'' imposed by traditional forecasting models. It serves as the foundation for the concerns he has expressed recently about the risks to the economy from the near-panic in the bond markets - and suggests that he remains concerned about the financial market problems even as the panic begins to subside.
It also helps to shape an impression that Dr Greenspan is more willing to rethink his approach than he gets credit for, and that he is not preoccupied with economic minutiae. NEW YORK TIMES
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