Maestro, If You Please …


The looming retirement of Alan Greenspan, set for January, has spawned lots of chatter among the professional Fed watchers as to who will be Greenspan's replacement, and whether this unlucky soul will have the intellectual heft and uncanny instincts to match those of the maestro.

All of this fretful speculation, though understandable given Greenspan's reputation as a miracle worker, can create the impression that the economy is controlled by one variable – Alan Greenspan – who, blessed with biblical-like powers, single-handedly directs the economy with his interest-rate decisions, his carefully composed utterances and a wave of the hand.

If only the world were so simple.

There's no denying the importance of monetary policy, but it's easy to forget, during a time when Greenspan is portrayed as an omnipotent oracle, that until 1913 the Federal Reserve did not even exist to help steer the U.S. economy. Yet wealth did grow prior to 1913, helped along by such profound changes in American society as industrialization, immigration and globalization.

So the ride may have been bumpier than it is now, but the ride still went up.

More powerful than monetary policy in determining the growth of the economy are changes in the worldwide financial structure, and the ingenuity and work ethic of Americans like ourselves. We may not realize it, but we are as important to this economy as the maestro, even if we don't see our name in the financial press each day.

Economies improve in the details of everyday work, in the millions of discoveries made every year throughout our country – at the factory, where a smart plant manager figures out a more efficient way to organize the plant floor; at the back offices of the Wall Street investment houses, where some clever math geek will design a new security that helps diversify risk; and in some obscure office in Silicon Valley, where the next Steve Jobs or Bill Gates, tinkering with his or her science experiment, will produce a new technology that improves the productivity of the nation.

The reason that the average income of middle-income households has increased from $16,000 in 1929 to $53,000 today is not just because of this tax cut or that tax increase, or because of the interest rate moves of a smart and inscrutable economist.

Wealth has increased from the steadily improving productivity of the American worker and the economy's increasing integration with the rest of the world.

Of course, this is not to say that policy is irrelevant. Clearly, it's not – particularly in the short run. And sometimes, the short run is not that short, especially if you're living in it.

It was policy that turned the 1929 recession into the Depression, and if you had the misfortune of being an unemployed adult during that time, calling the 15 years it took for the economy to improve "the short run" would have done very little to alleviate your pain.

Although we can't be sure if we'll get a new Fed chair who will match Greenspan, we can be reasonably sure that we'll get someone thoughtful and well-educated, who has carefully studied the reigns of Greenspan and predecessor Paul Volcker, and who will not make the kinds of mistakes made during the Depression.

This does not mean he or she will be perfect; Greenspan has not been perfect, either. But just as there was a Greenspan to replace a Volcker, there will be another legend to replace Greenspan. No one is irreplaceable.

Fred D. Snitzer is chief operating officer in the investment-management firm of Prudent Management Associates, specializing in high-net-worth and tax-deferred asset management.


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