Super-capitalist at the CEA

Ever since he served as principal economic adviser to Richard Nixon in the 1968 campaign, Alan Greenspan has resisted countless offers to join the Administration. He has preferred to remain an outside critic--consulting when asked, praising and needling as he saw fit. His reputation surely did not need whatever prestige--or damage--would accrue from a high job in a Government preoccupied with impeachment. He earns more than $300,000 annually as head of Manhattan's Townsend-Greenspan & Co., an economic consulting firm that has some 100 blue-chip corporate and Wall Street clients. He has earned the respect, too, of fellow economists of all persuasions, including his colleagues on TIME'S nine-member Board of Economists. Erudite and witty, with a fine mastery of business statistics and a knack for calling economic turns well in advance, Greenspan, 48, impresses even liberal Keynesians who dispute his supercapitalistic views.

So an obvious question emerged last week after President Nixon named him to succeed Herbert Stein in September as chairman of the Council of Economic Advisers: Why did Greenspan finally accept? Greenspan replies that the inflation-ridden economy is in much worse shape than it has been since the Administration began pressing him years ago, and the time has come to switch from critical spectator to committed participant. "What is at stake is so large," he says, "that if anyone has the possibility of making a contribution, he should. It's one of the rare instances when the issue of patriotism comes up."

Big Sacrifice. There were other inducements. Federal Reserve Chairman Arthur Burns, Treasury Secretary William Simon, Presidential Economics Adviser Kenneth Rush and Presidential Assistant Alexander Haig all prevailed upon Greenspan to accept. To avoid conflicts of interest and satisfy the Senate Banking Committee, which is expected to approve his appointment, Greenspan will place all stock he owns in his firm in a blind trust over which he will have no control. Thus he faces a big financial sacrifice that will not be offset by his $42,500 salary at CEA. Profits earned by his firm while he is away will be lost to him forever--distributed to employees and charities.

Greenspan entertains no fanciful notions about what he can accomplish in his new advisory role. "I'm not sure what can or has to be done," he says with characteristic candor. But he does know that a drop in crude-oil prices would do wonders to ease world financial imbalance. And, as a sharp foe of controls, he enthusiastically supports the Administration's anti-inflationary policy of laissez-faire. He will press hard for reduced Government spending aimed at balancing the budget in fiscal '76. To Greenspan, budget deficits are the incendiary fuel of inflation; they force the Government to compete with private business for borrowings, thus forcing up both the money supply and interest rates.

Greenspan is more interested in how the budget is cut than in how much it is cut by, although the more the better. The important thing, he says, is a perception by the American people that the Administration and Congress are working vigorously on a credible anti-inflation policy. He questions the orthodox view that unemployment will rise as spending goes down. Indeed, he asserts, unemployment ultimately would fall if inflationary expectations were reduced, because consumers would feel confident enough to spend more. Says he: "Short-term policies create an illusion, and then we find that's all it is --an illusion."

For the longer term, Greenspan favors thorough review of the budget-making process itself, with an eye toward re-examining such historic "un-controllables" as Social Security and veterans' benefits that he says go to permanent and ever-expanding "fiscal constituencies." He suspects that the administration of federal programs has generated huge cost overruns that would have made lawmakers, had they foreseen them, think twice about voting affirmatively. Greenspan's question: "Are the programs really mandated by law? We should look into that."

Greenspan's early background hardly pointed to a career in economics. The only child of parents who were later divorced, he was graduated from Manhattan's George Washington High School, where Henry Kissinger was a fellow student. Greenspan studied clarinet at the Juilliard School, and during World War II joined a dance band (Leonard Garment, now counsel to the President, played the sax). After a year of one-and two-night stands, Greenspan decided that he would prefer to go to college. In 1948 he was graduated summa cum laude in economics from New York University. He worked for The Conference Board (a business research group) for a while, then founded his now-thriving consulting firm in 1953 with William Townsend, a Wall Street bond trader, who died in 1958. Presently a bachelor, Greenspan was married for one year before a divorce.

Major Crossroad. He argues with cool passion that a free market functioning on its own without Government intervention is the most efficient and equitable way to allocate goods and services. But he likes to sound out economists who disagree, and he is likely to consult regularly with many of them and run a fairly open CEA. Over the years, Greenspan's ideas have been pragmatically tempered. He does not, for example, think that an immediate return to the gold standard is feasible, as he once did, although he says that the issue is "arguable."

His basic views have been greatly influenced by his friend and mentor, the Russian-born novelist and theorizer Ayn Rand (The Fountainhead, Atlas Shrugged), whom he has known since 1952. "America's abundance," she has written, "was not created by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests." Of Greenspan's new job, Rand, 69, said last week: "I think it's an heroic undertaking."

Hardly a man to make Panglossian predictions, Greenspan foresees an 8% inflation rate in the fourth quarter and "turgid" industrial growth and slimmer profit margins in 1975. In order to begin moving toward stabilizing the economy by 1976, he says, decisions for doing so must be made now. To help make those decisions, Greenspan is willing to take his quarter-of-a-million-dollar pay cut. "We are at a major crossroad," he says. "The actions taken in the next year or two will have a significant impact on where the U.S. is in 1980 and 1985."

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