Alan Greenspan's "extraordinary" legacy debated at Brevan Howard Centre

Franklin Allen (R) discusses new books by Sebastian Mallaby (L) and Adair Turner

Sebastian Mallaby, author of a biography of Alan Greenspan, "the rock star of central bankers", addressed Imperial's Brevan Howard Centre last night.

The discussion on Greenspan, who chaired the US Federal Reserve between 1987 and 2006, took place less than 24 hours after Mallaby won the Financial Times and McKinsey Business Book of the Year award. Previous winners include Thomas Friedman, Mohamed El-Erian and Thomas Piketty.  

Mallaby’s conversation with Lord Adair Turner, former chair of the Financial Services Authority and ex-Director General of the Confederation of British Industry, covered the life, legacy and politics of Greenspan, who Mallaby described as “the most consequential postwar financial statesman.”

“His life-story, his intellectual trajectory, was extraordinary,” but also “paradoxical”, said Mallaby. 

He described Greenspan as an “accomplished dancer, a driver of ostentatious cars, who courted beautiful women – not always sequentially,” as well as a “dry economist turned Machiavellian politician.”

In 1964 Greenspan described the creation of Federal Reserve system as “one of the historic disasters in American history”. As Mallaby noted, this is a startling remark “coming from the person responsible for the creation of the modern Federal Reserve.”

Lord Turner reminded the audience that Greenspan’s libertarianism was so radical in his earlier life that he fell in with the “borderline bonkers and extremely dangerous” ideologue Ayn Rand.

At the height of his powers, Greenspan attracted many admirers – even a cult following, with collectors of Greenspan dolls and t-shirts – but also many critics, including President George HW Bush. Mallaby recalled that one Bush staffer described Greenspan as “like a creepy guy in Psycho, the Alfred Hitchcock movie”.  

Contested legacy

Greenspan’s achievements include “breaking inflation,” with his years at the Fed dominated by low, stable inflation. But Turner and Mallaby debated how far Greenspan himself was responsible for that, or how much he inherited a favourable situation. 

Adair Turner (L) and Sebastian Mallaby (R)

“The Greenspan put” – holding up the financial system with liquidity – was much praised while he was in office, but when the global financial crisis struck, two years after Greenspan stepped down, he was subject to a radical reassessment, with many blaming the Greenspan worldview for the crash. 

“In the face of disaster, Greenspan famously said ‘I have found a flaw in my model,’” Lord Turner noted.  

For Mallaby, Greenspan knew of the flaws in his economic model before they manifested themselves, but he “truly didn’t know how to translate them into insights that could have prevented” the crash. 

Greenspan, despite his libertarian forays, believed that greater capital requirements for banks would have created a more secure financial system, but, as Mallaby argued, “politics got in the way”. 

The talk provoked a lively discussion afterwards

Anti-expert backlash

In an interview before the event, Mallaby spoke about the rise of populism in the age of Brexit and Trump and the backlash against technocrats and experts since the 2008 crisis. Mallaby argues that the “cult of the expert smashed into the populist backlash".

But this “backlash against central bankers came just as the experts’ policies partially succeeded… Trump came when US growth was at 2.9%,” he said. 

Mallaby sees new challenges for universities and science in this anti-expert climate. “In the 1990s heyday for respectable experts, if you’d said hard science and technology, people thought of Silicon Valley and the excitement of the internet. Now people think of robots stealing your job.”

Drawing on his past work critiquing the World Bank's leadership, Mallaby spoke of how the organisation had “made the mistake of engaging with certain critics” who “cannot be stopped” and “compromising scientific objectivity” in the process, yet the Bank failed to assuage or stop the critics. 

He believes that scientists in the US and Britain should “respond to criticism but at the same time not compromise” on scientific principles because “being criticised is a fact of life”. 

Talking about the anti-expert sentiment that arose around the EU referendum and politicians’ efforts to respond to that, Mallaby said “it is good to understand that people are upset but not to adopt populist” policies “because the truth is shutting down migration will have a negative effect on living standards”. 

“Experts should have the courage of their convictions and fight back against populism,” he concluded.