End of an era

The Labor Department reported on Jan. 18 that the consumer price index rose by 3.4 percent during 2005.

The fact that most people probably missed that news-or they heard it and promptly forgot it-is a testimony to Alan Greenspan's tenure as chairman of the Federal Reserve Board. Thirty years ago, everybody would have heard about a CPI gain of 3.4 percent, and nobody would have forgotten it. Politicians, rushing to podiums to claim credit, wouldn't have let them forget.

High inflation was the norm back then, and it's worth keeping in mind how different things are today as Mr. Greenspan ends his 18-year chairmanship of the U.S. central bank on Jan. 31.

Those who do remember know the 1970s were a time of politicized central bankers who boosted money supply as a short-term stimulus ahead of elections-only to ignite inflation later. The United States suffered through double-digit inflation for three years in a row, from 1979 to 1981, and it took an unpopular tightening of money by then-Fed chairman Paul Volcker to stabilize things.

Mr. Greenspan's great accomplishment is that he preserved and extended Mr. Volcker's hard-won victory. Annual inflation topped 5 percent only once during Mr. Greenspan's watch (in 1990), and it stayed at 3 percent or below 11 times.

Good things happen when inflation is low, and Mr. Greenspan's tenure has witnessed a strong run for the U.S. economy. Productivity has soared, and the economy has grown steadily with only two mild recessions. Even more impressive: These gains happened despite a stock market crash (in 1987), a collapse in Asian currencies, and a terrorist attack on the nation's financial center.

It's a good enough record to forgive what might be a hint of irrational exuberance in Princeton University economists Alan Blinder and Ricardo Reis, who wrote about Mr. Greenspan last year: "We think he has a legitimate claim to being the greatest central banker who ever lived."

Still, Mr. Greenspan is not without opponents who say he's been too easy with monetary policy. In response to the bursting of the tech bubble (which some say Fed policies helped to create), Mr. Greenspan began an aggressive round of interest rate cuts in 2001 that some analysts blame for today's housing bubble and the dangerously high levels of debt that Americans keep piling up. (U.S. households now spend almost 14 percent of their after-tax income on servicing debt.)

"The jury is out on his legacy in large part because of the debt" problem, Stephen S. Roach, chief economist at Morgan Stanley, told The Washington Post. "You will not be able to truly judge his accomplishments until we see how this plays out in the post-Greenspan era."

It's now up to Ben Bernanke, the new Fed chairman, to keep the dollar's value stable and the economy humming. His job will be much tougher than Mr. Greenspan's was. He likely will be in office when the first wave of baby boomers begins to retire-an unprecedented challenge to the U.S. economy and one that politicians refuse to face.

And then there are those troubles with housing and debt, which economist Mark Zandi told CNN are on the horizon: "I would attach a reasonably high probability that there will be a problem in the housing or finance markets that will test the next Fed chairman."