KEY CONCEPTS AND THINKERS

possibility of ``irrational exuberance'' forcing stock market valuations
to unsustainably high levels, this soft-spoken Republican occasionally
attracts criticism for his cautious approach to managing US monetary
policy.

Greenspan first held public office under Nixon as director of policy

research in the late 1960s, and became chairman of the Fed in 1987,
a post he will hold until 2004. The fact that he has presided over
the Fed during four presidencies is a testament to his political as well
as economic shrewdness. His power to influence the US economy
through short-term interest rates has made him the focus of attention
worldwide, leading him to choose his words carefully when making
public statements. His measured, calming approach has been applauded
by business people and politicians of all hues, although some object
to his view that financial markets should, as far as possible, be left to
respond to economic developments freely.

Greenspan believes (see Chapter 4) that the severe corporate down-

sizing of the 1980s and early 1990s have helped to dampen demands
for wage increases, thus keeping inflation low. The Fed, therefore,
has been able to afford to ease up on monetary restraints since
then. A strong advocate of deficit reduction, Greenspan has presided
over a period when the US deficit dropped, almost reaching zero in
1997.

Alan Greenspan is a firm believer in the most conservative of all

virtues, saving. Throughout the stock market boom of the late 1990s,
he frequently aired his concerns that people were spending their stock
market gains because they regarded them as permanent increases to
their wealth. ``We save too little,'' he complains, arguing that domestic
investment still largely depends on domestic saving. The recent stock
market collapse lends credence to his views.

THE PRODUCTIVITY PROBLEM AND GROWTH

The New Economy argument (see Chapter 4) has largely been based on
the view that new high-tech businesses have found a way to increase
productivity in the US. To put this into context, we need to recall
the great productivity debate of the late 1970s and early 1980s. US
productivity has gradually declined since the 1960s, as it has done in
other developed countries.