Alan Greenspan, who served as Federal Reserve chair for nearly two decades and passed away this week, left a complex legacy that continues to influence the central bank’s approach to monetary policy. As Kevin Warsh assumes the role of Fed chair, many observers suggest that studying Greenspan’s successes and failures could provide valuable guidance for navigating today’s economic challenges.

One of Greenspan’s notable contributions was the initiation of an era characterized by data-dependent policymaking. While it is now standard practice for Fed chairs to rely on extensive economic data, this was not the case during the postwar period Greenspan inherited. Known for his early career as an economic consultant and his personal passion for baseball statistics, Greenspan emphasized a broad array of economic indicators. This approach set a precedent followed by his successors. Although Warsh has expressed some skepticism about the Fed’s current reliance on data, he may find merit in maintaining a similarly comprehensive analytical framework.

In terms of policy style, Greenspan demonstrated considerable flexibility. He maintained an unofficial inflation target around 2 percent but did not rigidly adhere to it, instead factoring in labor market conditions, wage trends, growth metrics, and business data. This discretionary method helped the Fed fulfill its mandate during periods of economic stress. It remains to be seen which indicators Warsh will prioritize, but many expect him to adopt a comparable level of adaptability.

However, Greenspan’s tenure was not without significant criticisms, especially pertaining to ideological blind spots. Despite his data focus, some argue Greenspan’s strong belief in free-market principles limited his recognition of the risks associated with unstable credit conditions and mounting financial imbalances. Critics contend that this contributed to the environment of low interest rates and cheap credit that preceded the global financial crisis. Additionally, global economic imbalances during his tenure exacerbated structural challenges for American industries following the early 2000s “China shock.”

While these outcomes cannot be solely attributed to Greenspan’s oversight, analysts suggest that reevaluating a rigid faith in unregulated markets could have mitigated some fallout. Should Warsh consider a more dovish stance similar to Greenspan’s earlier years, it will be important for him to account for the broader risks that come with expansive monetary policies beyond inflation concerns. Experts caution against an ideological attachment to market mechanisms or undue influence from financial sectors like Wall Street and Silicon Valley.

Another enduring issue from Greenspan’s period is the perception of the so-called “Greenspan put”—the belief that the Federal Reserve would intervene to protect the stock market from significant downturns. This notion has persisted in various forms and may encourage increased risk-taking in volatile markets. Observers suggest that Warsh would benefit from confronting this perception early in his tenure. While market reactions cannot be ignored, sending a clear message that the Fed does not view stock market levels as a policy target could help temper imprudent behaviors.

In sum, Greenspan’s legacy offers a mix of innovative practices and cautionary tales. As Warsh steps into the Fed chair role, balancing data-driven flexibility with a nuanced appreciation of financial risks and market dynamics will be critical.