Greenspan Penned 'Irrational Exuberance' 30 Years Ago. It Aged Well.
Longstanding Federal Reserve Chairman Alan Greenspan passed away Monday at age 100. But for those of us old enough to remember the dot-com boom, his legacy looms large. Joanna Glasner jglasner Longstanding Federal Reserve Chairman Alan Greenspan passed away Monday at age 100.
Key Takeaways
- During his tenure as chair from 1987 to 2006, Greenspan was renowned for his cryptic utterances on the economy, leaving rate-watchers befuddled as to whether they presaged a likely cut or hike.
His wife, veteran NBC correspondent Andrea Mitchell , famously quipped that their marriage took time because "he claims he proposed three times before I was able to understand.
- How does one evaluate the price change of a cataract operation over a 10-year period when the nature of the procedure and its impact on the patient changes so radically?
- During and shortly after that period, money-losing e-commerce companies like online grocer Webvan and pet supply retailer Pets.
com famously went public at then sky-high valuations before abruptly shuttering.
- In Congressional testimony in early 1999, pressed for his thoughts on then fast-rising share prices of hot internet companies, the Fed chair compared the stock-buying frenzy to playing the lottery.
He observed that people have long been willing to pay more for a lottery ticket than their chances of winning would justify, simply because they are drawn to the remote chance of a huge win.
- In other ways, however, this time it's not a dot-com lottery ticket redo.
Stats & Key Facts
- #Dot-com-era megastars Google and Amazon , for instance, are now worth nearly $8 trillion combined.
- #In Congressional testimony in early 1999, pressed for his thoughts on then fast-rising share prices of hot internet companies, the Fed chair compared the stock-buying frenzy to playing the lottery.
But for those of us old enough to remember the dot-com boom, his legacy looms large. During his tenure as chair from 1987 to 2006, Greenspan was renowned for his cryptic utterances on the economy, leaving rate-watchers befuddled as to whether they presaged a likely cut or hike. His wife, veteran NBC correspondent Andrea Mitchell , famously quipped that their marriage took time because "he claims he proposed three times before I was able to understand.
" In spite of his long history of obfuscation, however, Greenspan is best known for a fairly unambiguous two-word phrase: "irrational exuberance. " He coined it in a 1996 speech to the American Enterprise Institute , a conservative-leaning think tank, titled "The Challenge of Central Banking in a Democratic Society. " One of the speech's core points was the notion that pricing logic in an industrial economy dominated by durable goods and materials is far simpler than for a modern economy increasingly dominated by software and services.
That insight, if I am translating Greenspan-speak correctly, was linked to the question of how one can establish long-term confidence in valuations of assets tied to fast-changing technologies and business models, like software, where prior notions of unit economics no longer applied. "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions," he wondered. It's a conjecture that 30 years later still has no obvious answer.
For more details please read the original article at Crunchbase News.
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