Greenspan Debate

Was Greenspan responsible for the economic boom of the 1990's?

Regina and Amanda:

No.

* President Clinton brought the budget deficit under control during the 1990's causing the economic boom of the 1990's.

* In addition, there was a powerful wave of corporate restructuring and technological change.

George:

Yes.

* Clinton's plan to reduce the deficit was a major factor in the economic boom of the 1990's, but did you know...

o Greenspan met with President elect Clinton in Little Rock before he took office and they discussed the best way to handle to economy?

 Greenspan told Clinton that the best thing for the economy would be low long term interest rates

 Greenspan advised Clinton that the bet way to achieve low long term rates would be a deficit reduction

 Consequently, Greenspan strongly endorsed Clinton's deficit reduction

* In addition, Greenspan and the Fed pulled off an economic "soft landing" in the mid 1990's

o By increasing the Fed Fund rate by just the right amount at just the right time Greenspan was able to keep inflation low without triggering a recession, allowing the boom to continue

Did Greenspan defeat inflation?

Regina and Amanda

No.

 80% of the drop in inflation occurred while Paul Volcker, Greenspan's predecessor, was Fed Chairman.

 (point to large decrease from 1980 to 1986)

George

* True. Volcker broke the back of inflation, but in order to do it he sent the economy into a recession.

* Greenspan did something even more amazing; he kept inflation low during the longest economic expansion in US history.

o He never had to break the back of inflation because he never let inflation get out of hand in the first place.

* (show steadiness of inflation and decrease from 1990 to 1998)

Did Greenspan rescue the economy from the stock market crash in 1987?

George

* When Greenspan took office he created crisis management committees including one on the stock market

* A couple of months later the stock market crash in a single day in history

* Greenspan and Fed credited with saving US economy by providing quickly providing liquidity to banks

o FOMC cannot direct banks, but E. Gerald Corrigan, Vice Chairman, called banks to pressure them to make payments

Regina and Amanda

* Everyone who has taken Parkman's class knows that the Great Depression was caused by the Fed's failure to provide liquidity after a stock market crash, resulting in severely disruptive deflation.

* Okay, he provided liquidity to banks...big deal, anyone in this room would have done the same thing, that doesn't make him a hero.

Has Greenspan saved the world from financial crisis?

George

Yes.

* He

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