The Lessons of Alan Greenspan

(from The Quotations of Alan Greenspan)

1. Learn everything you can, collect all the data, crunch all the numbers before making a prediction or a financial forecast. Even then, accept and understand that nobody can predict the future when people are involved. Human behavior hasn't changed; people are unpredictable. If you're wrong, correct your mistake and move on.
   
   
2. Worry early. Once you see the beginning signs of problems, like inflation, it may be too late to prevent it. (This was put best by William McChesney Martin, Jr., chairman of the Fed in the 1950s and 1960s, who described the agency this way: Its job is to "take away the punch bowl just as the party gets going.")
   
   
3. Inflation or price instability (or uncertainty in any form) is absolutely the worst thing for an economy. It makes people unwilling to take risks which are necessary for growth.
   
   
4. Take the short-term hit if it will bring long-term gain. Your decisions will not always be popular or politically expedient.
   
   
5. Debt is bad. Pay it down as fast as you can.
   
   
6. Continue to present your ideas in as many different ways as possible until people understand and act upon what you've been saying. (Greenspan's speeches often begin with 'mini-lectures' about the economy. He hammered away at Congress for years about the issue of debt and deficit reduction until it passed a balanced budget. Now he lectures them on paying down the debt with any surplus that becomes available.)
   
   
7. Know the effects of making your decision; understand what will happen if you don't make that decision, too. Consider the worst-case scenario and how you will deal with it.
   
   
8. You can never eliminate risk. In fact, you don't want to because it would lead to recklessness. Instead, try to mitigate risk and factor it into your decision-making process.
   
   
9. The business cycle is a fact of nature. The best we can do is try to keep the ups and downs from becoming too extreme. Always keep your eyes focused on the big picture despite short-term setbacks or detours.
   
   
10. Conditions are always in flux. Be flexible; understand and adjust to the changes around you but remain true to your core convictions.
    
    
11. Free, competitive markets, are the most efficient markets. Government intervention should be reserved for crises.
    
    
12. In the end, your reputation is your most important asset.
    
    

Copyright © 2012 Larry Kahaner