On August 14, 1945, half a million New Yorkers assembled in Times Square, right by the Childs’ restaurant where Greenspan had performed with the Henry Jerome Orchestra. Their eyes were fixed on the moving electric sign on the New York Times Building, and at 7:03 p.m. they got the news flash they were waiting for: “Official—Truman announces Japanese surrender.”
There was an immediate outpouring of joy. People in the streets tossed hats and flags into the air; office workers leaned precariously out of windows and showered confetti and streamers down on their heads; and the news radiated in all directions. In Harlem, couples jived in the streets and cars found it impossible to pass until sprinkler trucks dispersed pedestrians. In Italian American sections of Brooklyn, jubilant families set up tables outside and offered food, wine, and liquor to passersby. In the Garment District, brilliant patches of cloth, feathers, and hat trimmings mingled with the confetti that thickened the air. In the crooked streets of Chinatown, men, women, and children perched on fire escapes and waved American and Chinese flags and cheered the ritual dragons that danced their way along Mott Street and Doyers Street. Trucks laden with horn-blowing merrymakers pulled slowly through the dense ocean of humanity in Times Square. Men and women embraced. “There were no strangers in New York yesterday,” the New York Times reported.1
Yet amid the scenes of jubilance, there was an undertone of apprehension. Appearing on the lawn in front of the White House with his wife, Bess, President Truman celebrated “the day we’ve all been looking for,” but then added a warning: “We face the greatest task . . . and it is going to take the help of all of you to do it.”2 The nation had been pulled out of the Depression by war spending, fully half of which had been financed by debt; it had been “the largest public works project in the nation’s history,” in the words of the historian James Patterson.3 But Japan’s surrender signaled the end of the defense boom, and the nation now faced the challenge of demobilizing 12 million military personnel. Many feared that the returning servicemen would find nothing to do, and that queues of dejected, jobless youth would herald the return of the Depression.4 Public opinion surveys reported that seven out of ten Americans expected to be worse off in the future, reversing the doubling of salaries they had enjoyed during the war. The writer Bernard DeVoto identified in the nation a “fear which seems altogether new. . . . It may well be the most truly terrifying phenomenon of the war. It is a fear of the coming of peace.”5
The majority of Americans dealt with this fear by turning to their government. The experience of war had taught them how effective a federal super state could be; government planners had decided which factory should build what, and the result had been a triumph over fascism.6 In 1944, Congress had responded to the mood of the nation by passing the GI Bill, offering generous stipends to returning servicemen who wanted to buy a home or enroll in a university. In the presidential campaign that fall, Roosevelt had upped the ante, promising more hospitals, more airports, and sixty million new jobs; he won the election in a landslide. By 1945, total federal spending had hit $95 billion, up from around $9 billion in 1939; expenditures during the war years were twice the total during the previous 150 years of U.S. history.7 Roosevelt’s sudden death from a cerebral hemorrhage in April 1945 did not shake the country’s enthusiasm for his activist approach. In the wake of Japan’s surrender, Truman promised to fight for a new law that would guarantee full employment.
Such was the intellectual climate when Alan Greenspan entered the School of Commerce, Accounts, and Finance at New York University. Statist faith was at its peak; laissez-faire ideas were in abeyance. “In 1945 no articulate, coordinated, self-consciously conservative intellectual force existed in the United States,” declared George Nash, the great historian of the conservative movement. “There were, at most, scattered voices of protest.”8
• • •
Arriving on the NYU campus as a shy nineteen-year-old, Greenspan could hardly fail to sense these intellectual currents. Since quitting the Henry Jerome band, he had spent the summer shuttling between the public library and his mother’s apartment, diligently reading the textbooks he would encounter in his first year of economics. He wanted to make the most of his studies, which he was paying for out of savings from his musical earnings, and he was determined to overcome the handicap of two years away from the classroom. When the university opened in September, he commuted back and forth from Washington Heights to the Greenwich Village campus, a cluster of faculty buildings around an incongruous marble arch on Washington Square, built in self-conscious imitation of the Arc de Triomphe in Paris. There the young Greenspan encountered a social climate dominated by the legions of returning servicemen lounging around the ornate fountain in Washington Square Park. They were as sympathetic to government as any student cohort has ever been—the government was paying for their education.
Although New Deal progressivism dominated the country, Greenspan refused to be formed by it. He came of age in the era of Keynesian thinking, but he emerged as an un-Keynesian. It is tempting to explain this paradox in terms of the intellectual microclimate he inhabited, for the School of Commerce at NYU was at least partially at odds with the broader national zeitgeist. For one thing, the school had a strictly practical mission. Nicknamed the factory, its goal was to churn out accountants, insurance specialists, real estate managers, and such. The earnest young men who signed up for its classes went about the campus in formal shirts and ties, preemptively conforming to the dress code of the professions they aspired to.9 Moreover, those professions were not always friendly toward the New Deal. In 1945, Ira Mosher, the leader of the National Association of Manufacturers, denounced the “unmitigated warfare that has been waged for a decade against the free competitive enterprise system.”10 Perhaps a little of that sentiment may have filtered into the School of Commerce, despite the generally pro-government outlook of Greenspan’s generation.
Besides, university economics faculties were caught in a sort of time warp. By 1945, John Maynard Keynes’s ideas had been embraced by New Dealers in Washington, but they did not yet dominate the undergraduate curriculum the way they did after 1948, the year in which Paul Samuelson, the self-described “brash whippersnapper go-getter” at the Massachusetts Institute of Technology, published his classic introductory textbook, Economics.11 Samuelson’s text cemented in the minds of undergraduates the case for a mixed economy, and if Greenspan had been exposed to it at the start of his studies, it is at least conceivable that he might have developed differently. “No longer is modern man able to believe ‘that government governs best which governs least,’” Samuelson declared confidently in his textbook; and his writing’s profound influence on students just a few years younger than Greenspan can be gauged from the vehemence with which conservatives denounced it.12 In God and Man at Yale, published in 1951, William F. Buckley Jr. lamented that fully one third of the Yale class had been exposed to Samuelson’s writings, and that “the net influence of Yale economics” was “thoroughly collectivistic.”13
But when Greenspan began at NYU, Samuelson’s textbook was as yet unpublished. Instead, Greenspan enrolled in courses taught by Walter Spahr, the head of the NYU economics faculty, whose view of the New Deal was ferociously critical. In a typical speech to the Economic Club of Detroit in 1949, Spahr decried “the March into the Death Valley of Socialism,” exclaiming that “‘Liberalism’ means practically nothing but Socialism or Communism or being liberal with other people’s money.” Anticipating the objection that “the people” in question had voted for liberals, Spahr lectured his audience that “the last popular vote for Hitler was nearly 100% of the total vote cast.”14 Evidently, in those years when peace was new, the relics of the prewar economics lived on in the NYU faculty.
The question is how far any of this made a difference to the young Greenspan. Toward the end of his undergraduate career, he took Spahr’s class on understanding business cycles. Ironically, Spahr’s views on this subject anticipated the lectures and articles that Greenspan would produce in his thirties and early forties. In Spahr’s opinion, Keynes and his disciples had business cycles backward: they favored budget deficits and money printing to battle recessions, but Spahr fervently believed that such activism would serve only to exacerbate swings in the economy. Yet if this was Spahr’s opinion, he was ineffective at communicating it. His fierce off-campus speeches contrasted sharply with his quiet comportment at the university, and he smothered his ideological fire with a wet-blanket teaching style that made him the last person to win young minds over to conservatism. Standing before a packed classroom of fifty or so students, he would instruct his charges to open their textbooks at a certain page, then demand to know if anybody had a question about its content. The students were typically too bored or intimidated to venture a query, so Spahr would enjoin them to turn to the next page, whereupon he would repeat his question.
One day, as Spahr was torturing his students, a young naval veteran named Robert Kavesh looked over at his classmate Alan Greenspan, who was sitting next to him. Greenspan seemed to be hiding something from the professor, and when Kavesh looked closer, he saw what it was. Inside Spahr’s textbook on business cycles, Greenspan had concealed a smaller volume about Keynes; and he was reading it with rapt excitement. The fact that Spahr was a staunch conservative was evidently of no interest to his pupil. Far from recruiting Greenspan to the conservative cause, Spahr had come close to driving him away from it.15
The truth is that the microclimate at the School of Commerce influenced Greenspan less than the young man’s private reading.16 The twin engines of his childhood—an introspective isolation on the one hand, a burning ambition on the other—were driving Greenspan to educate himself, with little influence from outsiders. He had friends at the university, and he was happy to play the clarinet in the college orchestra, sing in the glee club, and team up with Bob Kavesh, his neighbor in the business cycle class, to found a music appreciation club they called the Symphonic Society.17 But just as he had won a coveted spot at Juilliard and then dropped out, and just as he had gotten his break in jazz and then turned to economics and finance, so as a student he cut his own path, curiously untouched by anything around him. If his later libertarianism had roots in his early life, these lay in his own nature, not in professorial nurture. The creed of individualism was bound to appeal to so pure an individualist.
• • •
Greenspan’s course of private reading began with economic history. His boyhood fascination with the railroads returned in a new guise: he devoured books on the visionary entrepreneurs who had built the United States into an industrial powerhouse, all within the span of one man’s lifetime. Historians might write about armies and navies and treaties, but the true making of the nation came down to the steam and steel that connected up a continent-sized country. Greenspan was especially enamored of James J. Hill, the impresario of the Great Northern line, whose ideas and ingenuity had turned the wilderness that was the great northwest into a thriving, productive economy.18 In the mind of the young Greenspan, the industrialists of the late nineteenth century were not robber barons but pioneers and heroes. When the first doubleheader plowed across the Dakotas to the Pacific seaboard, the American empire was riding in that train of cars, and the plumes of smoke that streamed out from the engine signified as much as the burning powder over Gettysburg.19
Greenspan also imbibed Keynes, both indirectly and directly. He read the work of Alvin Hansen, an eminent Harvard economist who had embraced Keynes’s writings during the 1930s. Hansen had seized upon Keynes’s chief insight—the so-called paradox of thrift—and given it a new twist, influencing both policy makers and a younger generation of economists. Keynes’s paradox described how a cyclical downturn could feed on itself: when the economy slowed, cautious consumers would seek to save, depriving businesses of customers and so exacerbating the slowdown. But Hansen believed that weak private demand and excess saving had become a structural malaise. The forces that had spurred spending in the nineteenth century had played themselves out; slowing population growth, the closing of the American frontier, and the maturation of the great capital-consuming industries such as railroads and steel signaled that spending would be weak indefinitely. Full employment and inflation were almost inconceivable under these conditions, Hansen believed; and this meant that the policy prescriptions that Keynes had advocated during the Depression were actually permanent imperatives. To counter what Hansen called secular stagnation, the government would have to discourage excess saving by redistributing money from the high-saving rich to the high-spending poor. It would have to boost public spending and tolerate large budget deficits.
Greenspan was not convinced by any of this. The contention that excess savings would pile up, with nobody willing to spend or invest them, seemed just too pessimistic. To a young man whose imagination had been captured by the virile railway magnates of the nineteenth century, it seemed obvious that there would always be new technologies on which to venture bets; the frontier was not purely geographical. It was all very well for Hansen, an economist already in his forties at the onset of the Depression, to have been shocked into a state of jaded gloom. But to Greenspan, the Depression was just the backdrop for his childhood; he failed to find it discouraging because he accepted it as normal.20 What he recalled about the 1930s had nothing to do with excess savings or job lines; he remembered instead the thrill of visiting the World’s Fair in New York in 1939, where he laid eyes for the first time on a magic box called television. Even as he commuted back and forth to New York University several years later, Greenspan could see the city changing under the impact of that box, as scrawny forests of antennas sprouted on rooftops. How could Hansen argue that progress was grinding to a halt? And how could anyone suppose that there was nothing left to spend money on?
As he read everything he found, Greenspan chanced upon a rebuttal of Hansen by George Terborgh, an obscure economist employed by the Machinery and Allied Products Institute. A more conventional student would not have given this author so much as a second glance—why read a nobody from a lobbying outfit when an eminent Harvard professor was arrayed against him? But with the quirky independence of an autodidact, Greenspan studied Terborgh’s book The Bogey of Economic Maturity and agreed with what it said. Hansen’s “stagnationist” position was excessively colored by “the dark valley of the thirties.”21
As luck would have it, events soon vindicated Greenspan and Terborgh. The end of wartime rationing uncorked an exuberant surge of consumer spending as Americans bought washing machines, automobiles, electric ranges, cotton goods, girdles, nylons, cameras, film, sporting equipment, electric train sets—they had been denied all these during the war, and now they were happy to tap savings to spoil themselves.22 Contrary to Hansen’s pronouncements, consumer spending, economic growth, and inflation were not dead—indeed, consumer prices rose by 17.6 percent during Greenspan’s second year in college. His skepticism of neo-Keynesian thought was thus confirmed. And so was his confidence in his magpie approach to his own intellectual development.
• • •
As he grappled with Keynes, Greenspan was changing. He had begun college as an unsure youth escaping from a dead-end job in a second-tier jazz band. Two years into his studies, he was emerging as a young man with a vocation. At the close of his junior year at NYU, he was the runner-up for the university’s Beta Gamma Sigma Scholastic Award, a recognition of “scholarship, character, and seriousness of purpose.”23 His friend Bob Kavesh, who went on to a distinguished career as an economics professor, thought he had never seen anyone assemble bits of information so effectively from such eclectic sources. In discovering economics, Greenspan had discovered his calling.
It was an exciting time to enter the profession. Greenspan came to economics just as the United States came to dominate the field. Before the war, the London and Cambridge of John Maynard Keynes had shaped economic thinking. After the war, Boston, Chicago, and New York took over, with vicious academic fights among them.24 What really captivated Greenspan was neither the missionary Keynesianism of the Bostonians nor the laissez-faire ideas of Chicago. It was the intense empiricism of the New York school, which shaped his approach throughout his career and explained what would be his greatest achievement.
The headquarters of the New York school were to be found some six miles north of NYU—at Columbia University and at the nearby National Bureau of Economic Research, which had been launched in 1920 by a Columbia professor named Wesley Clair Mitchell. The goal of the National Bureau was not to theorize about how the economy might function but rather to measure what it did; how much cotton or pig iron it produced; how many hours the average worker clocked up in a week; how much companies spent on new machines or buildings. Over the next quarter century, researchers at the National Bureau assembled the statistics necessary to document the business cycle and formulate the national accounts from which the gross domestic product is calculated. At the onset of the Depression, the Hoover and Roosevelt administrations had confronted a collapse in output without the benefit of knowing what that output was. By the time Greenspan graduated from NYU, armies of Wesley Mitchell acolytes were tracking every facet of Americans’ productive existence.
In his junior year at NYU, Greenspan got a taste of this measurement project. He took statistics classes from Geoffrey Moore, a School of Commerce professor who doubled as a researcher at the National Bureau. Moore went on to become commissioner of labor statistics under Richard Nixon, and made a lasting mark on the profession by developing leading and lagging indicators of the business cycle. Moore recognized in the young Greenspan a like-minded data sleuth, and recommended him for a summer job at the prestigious banking house of Brown Brothers Harriman. Greenspan rode the subway down to the Brown Brothers building on Wall Street and soon found himself stepping into a sanctuary of thick carpets, gilded ceilings, and rolltop desks.25 A young partner at the bank asked him to produce a weekly seasonal adjustment for the Federal Reserve’s data on department store sales, and for the next two months Greenspan consulted technical articles on how seasonal adjustments are calculated, marshaling the data with the help of a slide rule.
As he labored over the numbers, Greenspan discovered something about himself. He found more satisfaction in this narrow task than in the grand but inconclusive debates about government versus markets that preoccupied some of his friends on campus. Something powerful inside him craved control over a confined domain. He wanted to be right, and to know that he was right; and he thrived on problems that he could solve alone, without seeking others’ opinions. The critics of the New York school had lampooned the National Bureau for pursuing “measurement without theory.” The shy young introvert was happy just to measure things.26
Greenspan graduated summa cum laude in 1948, having secured an unbroken string of A grades in all his classes after his first semester.27 He accepted a scholarship to stay on at NYU and study for a master’s degree in the evenings; his savings from his jazz days had run out and he needed to work during the daytime. An advertising agency made him a lucrative offer, but the ad business was not where his heart lay; instead, he took a more modestly paid position as a business researcher at the National Industrial Conference Board. At $45 a week, the job came with less money than his old gig in the Henry Jerome band, but it offered a chance to get established as a young economist.
The Conference Board had some two hundred member companies—a who’s who of American business—and its approach to economics made it an extension of the empirical New York school. The board had developed the first version of the consumer price index, and had been the best source of data on unemployment during the Depression. At its big offices on Park Avenue, rows of researchers assembled numbers that its corporate members wanted: trends in mining, cotton harvesting, foreign trade, steel output, and so on. Greenspan made it his mission to master all the sources in the Conference Board’s library, and he began to publish articles in the board’s house journal. He produced learned analyses on small manufacturers’ profits, housing starts, and consumer credit trends. The Conference Board’s membership came to know his byline. The New York Times picked up one of his articles.
As he established himself at the Conference Board, Greenspan attracted a new kind of attention from his father. After deserting Rose soon after Alan’s birth, Herbert had mostly disappeared from his son’s life—especially after he remarried and began a second family. Now that Alan was succeeding professionally, Herbert reappeared, proposing that they go into business as partners; perhaps they could set up a consulting firm or even try their hands at trading. The proposals met with a stony reception. Alan had dealt with the lack of a father by retiring into his own world. He was not about to embrace a partnership with the man who had driven him into his shell in the first place.
Besides, there was something about Herbert that produced a visceral response from Alan. His father behaved awkwardly toward him, and this made him behave awkwardly in turn. It was bad enough to have inherited this social handicap from his father; it was worse to have him there to reinforce it. And Herbert, although intelligent, gave off a stifling odor of failure. He talked a good game about setting up a new enterprise—like many followers of the stock market in the 1940s, he was fascinated by price charts that told you when to buy stocks and when to get out of them. But Herbert lacked the character to deliver on his patter; he was still the same man who had promised to visit his young son in Washington Heights and then disappointed him, repeatedly. If Rose Goldsmith’s unqualified devotion to Alan had fortified him with that feeling of a conqueror, Herbert Greenspan’s aura of wasted potential provided a different sort of goad. The son was determined not to be like the father. He would prove that he was different by separating himself from him professionally.28
Greenspan was more open to substitute fathers.29 In 1950, he completed his master’s degree at NYU and enrolled in the PhD program at Columbia University. His adviser there was Arthur Burns, later the Fed chairman of the 1970s. Burns was an impressive figure, handsome and articulate; during his career in government, it was said that wherever he sat was the head of the table.30 Milton Friedman, who studied under Burns at Rutgers University, wrote that his “greatest indebtedness,” apart from that to his parents, was “unquestionably” to Burns, calling him “almost a surrogate father.”31 Greenspan reacted to Burns the same way; there was something about his old-world bearing, the thick hair parted in the center and the meditative tamping of his pipe, which commanded admiration and affection. “If only I could become somebody like him and then make $20,000 a year,” Greenspan remembers thinking.32 If Greenspan’s own father provided something of an anti–role model, Burns personified the professional success that Greenspan aspired to.
Burns was the chief heir to Wesley Mitchell’s empiricist tradition, and his influence restrained any enthusiasm that Greenspan might have felt for the new trends that had begun to stir in economics. After arriving at Columbia, Greenspan took a course in mathematical statistics, the field that would later be known as econometrics. The course showed how you could take the measurements generated by the empiricists and test the relationships among them, using the tools of regression analysis. In the absence of those tools, economists could make educated guesses about how one part of the economy related to another. For example, a surge in steel production logically signaled a burst of activity in steel-using industries such as automobile manufacturing, which in turn provided grounds on which to forecast faster growth for the entire economy. But with the help of regression analysis, economists could do better than just guess. They could calculate the relationship between past accelerations in steel output and accelerations in growth, and so forecast the future with something closer to scientific confidence.
Years later, Greenspan would deploy regression analysis to build a model of the economy, and would describe himself as “an empiricist mugged by econometrics.”33 But thanks to Burns’s influence, he studied mathematical statistics at Columbia without fully embracing it. In his work at the Conference Board, he continued to sidestep the uncertain business of calculating relationships among economic variables, preferring to stick with the empiricists’ agenda of amassing data. Just measuring the economy was challenge enough: data series upon data series had to be cyclically adjusted, seasonally adjusted, and checked for consistency against other series—all without the assistance of computers. There was more value in this humble task than in fancy mathematics, Greenspan believed. Even the cleverest econometric calculation was limited because yesterday’s statistical relationships might break down tomorrow; by contrast, finer measures of what the economy is actually doing are more than just estimates—they are facts. Even after he embraced econometrics, and even after he became chairman of the Fed, Greenspan never shed his conviction that the quality of an economist’s data mattered more than the sophistication of his modeling.
• • •
In 2011, during one of our long conversations in his office in Washington, Greenspan plucked a faded green volume from a shelf. It was a copy of Measuring Business Cycles, Arthur Burns’s classic study of the vicissitudes of the American economy, co-written with the father of empiricism, Wesley Mitchell. The text had been lovingly preserved since Greenspan’s time at Columbia six decades earlier.
“Open it,” Greenspan invited me.
I let the book fall open at random. The page was dominated by tables and charts: pig iron production, railroad stock prices, call money interest rates.
I looked up quizzically, and a wry gesture told me to try the exercise again. This time I flipped open a different page, and found myself gazing at a table that meticulously reported the peaks and troughs of bituminous coal production. Page after page heaved with minute inventories of America’s industrial heyday. The Burns-Mitchell view of the economy had been built up from statistics on every raw material, every mine, every factory.
I understood why Greenspan was showing me his mentor’s book. It was a window on the economic thinking of a different age, and he wanted me to see where his love of statistics had come from.