Does Alan Greenspan Belong In The Pantheon of Innovation Greats?

Posted by: Bruce Nussbaum on September 17, 2007

Ex-Fed chairman Alan Greenspan is on 60 Minutes, the cover of Newsweek and in practically every newspaper this week, flogging his new book The Age of Turbulence, and castigating Republicans for their profligate government spending. In reaction, Alan Greenspan is being castigated for his loose money policies when he ran the Federal Reserve which, critics say, have caused a housing bubble—and bust.

I’m not going to take sides on this controversy but raise another—was Greenspan one of Great Innovators who deserves to be in the ranks of Jobs, Brins, Gates (you know what I mean here) and others who’ve created our modern, high-tech economy? My answer is Yes.

Greenspan was one of the first economists—and certain the most powerful policy-maker in Washington—to understood the power of rising productivity. He got the fact that the internet boom of the 90’s kicked US productivity growth up to a much higher rate—2%-3%—from the low 1% of the 70s and 80s. And, more importantly, Greenspan understand that higher productivity meant that the economy could grow faster without generating more inflation.

This is why Greenspan belongs in the Pantheon of Innovation Greats. Before him, the Federal Reserve always raised interest rates and “took away the cookie jar” just when economic growth was going fast enough to lower unemployment and raise real incomes. It raised rates because higher growth tightened up the supply of goods and labor and raised their prices. Hence inflation.

But Greenspan understand that this formula worked with productivity growing at 1%. Double that productivity growth rate and you can have faster economic growth without inflation. Or much less.

Did Greenspan cause the internet and housing bubbles? I don’t know. I’ll let the usual mainstream pundits—and politicos since this is an election season—fight it out. But Greenspan was certainly a Great Innovator.

Reader Comments

random

September 18, 2007 12:12 PM

I know you weren't going to tackle this, but I'm sure you knew somebody would leave a comment on Greenspan's policies...

The idea that Greenspan caused the housing bubble by creating so much cheap cash sounds a little odd to me. Yes, Greenspan made more cash available and that cash was cheaper. However, the public and then the companies plowed all this cheap money into real estate, seeking refuge from the recession paralyzed stock market and a whole host of unsavory practices developed out of what was already a real estate glut to keep the bubble going ever longer.

We also have to account for the global economy. The Fed had so much control until the 1990s because the US was a more closed economy, not so open to what happened around the world. Now, the US is linked into every country with an industry and alliances of global partners and multinational companies dominate the business world, changing the way the money flows. It started in the late 1990s and Greenspan did the only thing he could. He let the market correct and police itself, knowing full well that raising rates would only have a slightly chilling effect on the economy. After all, businesses could just get cheap money elsewhere.

Innovation Catalyst

September 18, 2007 5:36 PM

Because housing inflation isn't reflected in US inflation figures, there is no 'trigger' to raise interest rates during a housing boom. I hold Greenspan partially responsible for this.

CaTrina Holmes

September 18, 2007 8:31 PM

I feel that the purpose of this article was to persuade because from the very beginning they had their very own opinion. I think that the article was basically trying to tell us the obvious and trying to make us agree.I take the tone of this article as someone being sure of themself and feeling secure about what they are talking about

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About

Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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