The Man Who Knew: The Life and Times of Alan Greenspan — Eleven: REPUBLICAN DREAMERS

1. 1. Arthur Burns argued that the Federal Reserve had the power to abort inflation but failed due to political and philosophical currents transforming American life.
2. 2. Paul Volcker rejected Burns's argument that political constraints made central banks impotent, and after the speech he returned to Washington to implement a dramatic anti-inflation policy.
3. 3. Volcker's monetarist experiment drove inflation from 12.1% in October 1979 to 5.9% by 1982, but short-term interest rates hit 20% and the economy suffered a double-dip recession with double-digit unemployment.
4. 4. Volcker's success owed much to timing: public and market panic over inflation created political cover for aggressive tightening, which Burns had argued was necessary for Fed action.
5. 5. Alan Greenspan predicted the Volcker shock based on opinion polls showing public frustration with inflation would force government action.
6. 6. Ronald Reagan favored a return to the gold standard to fight inflation, but Milton Friedman and Greenspan both rejected the idea as unstable and simplistic.
7. 7. Greenspan opposed the supply-side dogma that tax cuts would pay for themselves, testifying before the Senate in March 1980 that harsh medicine was needed to address the true size of the budget deficit.
8. 8. Greenspan's 1980 Challenge essay warned that a housing bubble built on debt, combined with complex financial innovations and interconnected banks, could lead to a crisis requiring central bank bailouts.
9. 9. Gerald Ford considered becoming Reagan's running mate in a 'Dream Ticket' that would have given Ford control over foreign policy and the budget, with Greenspan as Treasury Secretary.
10. 10. After the Dream Ticket collapsed, Greenspan worked to soften the memory of his role, publicly blaming Ford's indecisiveness rather than the personnel demands.
11. 11. Greenspan calculated that every $100 in Kemp-Roth tax cuts would generate only $17 in new revenues, expanding the deficit by $83, and argued cuts must be phased in with spending reductions.
12. 12. Greenspan reluctantly endorsed Reagan's budget projections in Chicago after pressure from campaign aides, despite his discomfort with the optimistic Senate forecast implying 9% inflation.