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Greenspan: Hero? Or goat?
At the Jackson Hole symposium, economists will consider the Fed chairman's legacy.
August 25, 2005: 12:29 PM EDT

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NEW YORK (CNN/Money) - In many respects, the 29th annual Jackson Hole symposium, put on as always by the Federal Reserve Bank of Kansas City, promises to be a two-and-a-half day love fest honoring Alan Greenspan.

Greenspan has led the Federal Reserve for nearly two decades, overseeing the longest economic expansion in modern U.S. history, navigating through several financial crises, and deftly managing to avoid any blame for missteps that have occurred along the way.

The Fed chief kicks off the symposium on Friday morning at 8:00 am Rocky Mountain time (10 a.m. ET).

On traders' minds: Is the housing bubble spreading? Are high oil prices fueling inflation or eating a hole in consumers' and businesses' pocketbooks?

But Greenspan may see this as his swan song, more of an opportunity to define his record and to steer future monetary policy by laying out what he thinks are the best tools and best strategies now.

"Going forward there is a sense of what are we trying to do here?" said John Silvia chief economist at Wachovia Securities.

Is the No. 1 goal price stability, even targeting a specific inflation rate, and giving lower priority to goals like low unemployment and economic growth?

Or do all these goals have equal weight so that markets and policymakers have to use what economist call "discretion" to gauge policy, or as a layperson might less-kindly put it, fly by the seat of their pants?

"The question is, What is the relative weighting?" Silvia said.

The two Greenspans

Greenspan's fans say his ability to disregard rigid policy "rules" and use his own eclectic approach have been key to his success.

Critics say this habit led him to miss the 1990-91 recession until it was well underway, to nearly cause a recession with aggressive rate hikes in 1994-95 and to help cause a housing bubble by pushing rates too low for too long in 2001 and beyond.

Critics and fans aside, a pragmatic question stemming from the long era of Oracle-like discretion is how does his successor pick up the reins and guide monetary policy in the next decade?

"He has faced many different kinds of economic environments," said Diane Swonk, chief economist of Mesirow Financial in Chicago. "He has thrown away any kind of rule of thumb."

Swonk sees several different Greenspans. There was the 1987 Fed chief who let the economy grow below trend to grind out inflation and was surprised by a recession.

There was the financial-crisis Greenspan who eased aggressively and pre-emptively to forestall meltdowns went stocks crashed, when Russia melted down and after 9/11.

And don't forget the late 1990s Greenspan who experimented' betting on stronger productivity and an economy that could grow faster than previously thought without causing inflation -- a key factor in the 1990s boom.

Of course that leads to the Greenspan who still insists neither he nor any central bank has the ability or duty to prick bubbles -- whether it be tech stocks on steroids or houses on overdrive.


-- Kathleen Hays is economics correspondent for CNN and contributes to Lou Dobbs Tonight. You can read more of her columns here.  Top of page

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