The man who invented the Fed’s magic trick just died. His successor is about to try it again

Some of the most consequential decisions in the global economy of the 1990s were worked out in a bathtub. Alan Greenspan, who died Monday at 100 from complications of Parkinson’s, had a bad back. He soaked it at dawn in a deep tub at home, thinking through the economy before the day began, and it was there, said Peter Petre, the former Fortune editor who co-wrote his memoir, where his best ideas were formed, including the famous phrase “irrational exuberance.” Greenspan died just as the U.S. stock market began another rout over “irrational exuberance,” but this time with a new target. The AI trade has left some AI-adjacent companies trading at valuations that Greenspan’s longtime vice chair at the Fed (and once considered heir apparent), Alan Blinder, described as “wild” to Fortune.“The question is, are they crazy?” Blinder said. “This is very much analogous to the questions that Greenspan faced in the late ‘90s.”When Greenspan presided over the bubbling internet age, he made an early bet that most economists, including Blinder, rejected: that the internet boom was allowing the economy to grow faster than official projections estimated. So, he kept interest rates low, even as inflation started heating up, to allow the boom to run. That decision proved prescient: inflation stayed contained while the new technology delivered one of the strongest economic expansions of the modern era. Greenspan became a rockstar, hailed as the “Maestro,” the “Oracle,” a man who could sense the economic shifts better than anyone else. Soon even his own colleagues at the Fed feared challenging him, for it felt, Blinder said, like “challenging Zeus on the mount of Olympus.” But that forecast was really a creed, one that would sully his reputation just as fast as it made it. Markets, he believed, were self-correcting, and could price assets correctly. If there were bubbles, the Fed can’t do anything about it without disrupting the natural balance of thin