Greenspan served as Chairman of the Federal Reserve for nearly two decades, dying at the age of 100 and leaving behind a complex but instructive legacy.
His passing has received limited media attention due to the resignation of the Prime Minister, yet his influence on monetary policy far outlasts the political drama of the moment.
The first lesson Greenspan leaves is for central bankers who must manage inflation expectations, which he understood to be extraordinarily costly once they become unanchored.
He inherited an economy still recovering from the inflation shock of the 1970s, a period defined by stagnant growth, high inflation, and an oil crisis rooted in Middle East instability.
Central bankers today still invoke what they call “Volcker-Greenspan credibility,” reflecting both Greenspan and his predecessor Paul Volcker’s disciplined commitment to using the Fed’s tools appropriately.
Greenspan also proved himself exceptional in a crisis, most notably during Black Monday in 1987 when the Dow fell 22.6 per cent in a single day.
He moved fast, signalling the Fed would supply ample liquidity to the banking system, preventing panic from cascading into a full-blown banking crisis.
The Bank of England would do well to study this approach, having ignored the surge in money supply growth in the aftermath of the pandemic and allowing inflation to spiral out of control.
When the Bank finally acted, it was too late, leaving households suffering under interest rates that stayed too high for too long as a direct consequence.
The Monetary Policy Committee then risked repeating mistakes in reverse, hinting it would start hiking the Bank Rate in response to the Iran War rather than looking through a supply side shock and doing nothing.
Greenspan also carries lessons for politicians increasingly sceptical of central bank independence, including voices from the Left and from Reform, though the Bank has broadly met its inflation target despite recent failings.
Greenspan demonstrates the importance of having highly qualified technocrats overseeing monetary policy rather than politically driven figures, and whoever sits in Number 11 Downing Street come September should treat central bank independence as non-negotiable.
Beyond monetary policy, Greenspan was a committed supporter of the free market, and as an acolyte of Ayn Rand he held a deep suspicion of high taxes and onerous regulations.
The relentless ratcheting up of regulations and taxes, particularly damaging for financial services firms since the Global Financial Crisis, has contributed to almost two lost decades of stagnant economic growth.
Greenspan was far from perfect and was the first to admit this, with his decision to keep monetary policy too loose for too long widely seen as a contributing factor to the Global Financial Crisis itself.