Excerpts from The Quotations of Alan Greenspan

Greenspan on:

The Stock Market

This is from Greenspan's now-famous "irrational exuberance" speech during which he hinted that he thought stock valuations were too high. Following the speech, Japan's stock market fell 3 percent, Germany's 4 percent and America's 2 percent. Ironically, few people had even read the speech; even fewer heard anything about it.

"Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy."

At the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C.; December 5, 1996

Human behavior is a main factor in how markets act. Indeed, sometimes markets act quickly, violently with little warning...

"Ultimately, history tells us that there will be a correction of some significant dimension. I have no doubt that, human nature being what it is, that it is going to happen again and again."

Before the Committee on Banking and Financial Services, U.S. House of Representatives; July 24, 1998

Competition...

As a free-market proponent, Greenspan is a fan of robust competition both domestically and internationally. Indeed, competition must exist for an economy to grow and prosper.

"In the end it is clear that all economic progress rests on competition."

Before the Dallas Ambassadors Forum, Dallas, Texas; April 16, 1999

The New Economy...

"Is it possible that there is something fundamentally new about this current period that would warrant such complacency? Yes, it is possible. Markets may have become more efficient, competition is more global, and information technology has doubtless enhanced the stability of business operations. But, regrettably, history is strewn with visions of such 'new eras' that, in the end, have proven to be a mirage. In short, history counsels caution."

The Federal Reserve's semiannual monetary policy report, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate; February 26, 1997

Humor...

"If I say something which you understand fully in this regard, I probably made a mistake."

Before the Senate Banking Committee, June 20, 1995

Reputation...

One of Greenspan's keys to success is his sound reputation. He is trusted by those in all political camps, and even though opponents may disagree with his beliefs, none have ever said he was untrustworthy or that he went back on a promise. He is an honest man.

In these excerpts, Greenspan discusses the power of a good name and its value in business.

"It is decidedly not true that 'nice guys finish last,' as that highly original American baseball philosopher, Leo Durocher, was once alleged to have said.

"I do not deny that many appear to have succeeded in a material way by cutting corners and manipulating associates, both in their professional and in their personal lives. But material success is possible in this world and far more satisfying when it comes without exploiting others. The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.

"I cannot speak for others whose psyches I may not be able to comprehend, but, in my working life, I have found no greater satisfaction than achieving success through honest dealings and strict adherence to the view that for you to gain, those you deal with should gain as well. Human relations--be they personal or professional--should not be zero sum games. And beyond the personal sense of satisfaction, having a reputation for fair dealing is a profoundly practical virtue. We call it 'good will' business and add it to our balance sheets.

"Trust is at the root of any economic system based on mutually beneficial exchange. In virtually all transactions, we rely on the word of those with whom we do business. Were this not the case, exchange of goods and services could not take place on any reasonable scale. Our commercial codes and contract law presume that only a tiny fraction of contracts, at most, need be adjudicated. If a significant number of businesspeople violated the trust upon which our interactions are based, our court system and our economy would be swamped into immobility."

Commencement address, Harvard University, Cambridge, Massachusetts--June 10, 1999

Risk...

Risk is an inherent aspect of creating wealth.

"Risk-taking is indeed a necessary condition for the creation of wealth. The ultimate values of all assets rest on their ability to produce goods and services in the future. And the future as we all know is uncertain and hence all investments are risky."

Presented at annual Economic Symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo., Aug. 29, 1997

We can't predict which technologies will pay off and which will not, so we must become even more flexible in our thinking...

"Our future entrepreneurs must be prepared to compete in an environment in which the largest part of the growth in output is the result of new insights. Breakthroughs in technology are continually adding to the ever-longer list of wholly conceptual elements in our economic output. The success of our future business leaders will depend greatly on their capacity to develop and apply new technology and to rearrange physical reality to achieve products and services more highly valued by consumers. To do this will demand not only greater specialized knowledge, but also an ability to deal with risk and uncertainty. Unfortunately, we have found that we never can predict with any precision which particular technology or synergies of technologies will add significantly to our knowledge and our ability to gain from that knowledge."

The underemployment of minorities, at the Wall Street Project Anniversary Conference of the Rainbow/PUSH Coalition, New York, New York; January 16, 1998

What others say about Alan Greenspan

"When Greenspan dies his headstone would read: 'I am guardedly optimistic about the next world, but remain cognizant of the downside risk.'"

Economist Jeremy Gluck, Manchester Guardian Weekly--December 27, 1996

In the 1950s, Saul Klaman, now vice chairman of Golembe Associates in Boston, met Alan Greenspan. Greenspan, a young economist, was working on a magazine article and went to Klaman, asking for data. "It doesn't exist," Klaman told him confidently. Greenspan thanked him and left. When the magazine article appeared, color graphs and charts displayed the "non-existent" information on housing.

"I was shocked," Klaman said. "I still don't know where the hell he got it. But I figured someone who was that inventive would go far."

St. Petersburg Times--July 26, 1987

Copyright © 2008 Larry Kahaner