A Monetary and Fiscal History of the United States, 1961–2021

More of a memoir than a monetary and fiscal history
A Monetary and Fiscal History of the United States is Alan Blinder’s perspective on the policy mix in the US over the last 60 years. He has been a witness to most of this directly and as such much is a memoir of the debates of the time and the conclusions on solutions. Blinder is distinctly Keynesian and uses this as an opportunity to point out demonstrable flaws in monetarist ideas in practice and also to straighten out some incorrect assumptions about what Keynesian solutions often say. In an era with a newly faced inflation shock, the ideas discussed in the book are of value especially with a reference to the history of monetary and fiscal shocks throughout the last 60 years.The title is a bold one, which takes partial aim at Friedman and Schwartz’s a Monetary History of the United States. It is much more of a memoir though than a statistical analysis of a period in history with the ambition of trying to frame causality between variables. The author does discuss how the inflation shocks in the late 60s and 70’s led to the growth of monetarism and how Keynesian’s never disputed the role of money in inflation but believed (and believe) money supply to be endogenous and as such not directly influenceable. The experiments on trying to control the money supply directly all failed, in particular in the US and UK. The author also highlights how supply shocks should not be responded to blindly with tighter monetary policy and the inflationary fade is modelled much better with Keynesian models. This is likely an appropriate concept for policy makers today in response to the energy price shock. The author moves from the Volker period, where he highlights Volker used monetarism as a political narrative to achieve tightening but in fact did not rely on monetarist ideas to determine the rates required to break inflationary expectations.The author then spends time in the Greenspan era with globalization and disinflationary trends dominating the economic discussions. The author also discusses how the link between deficits and inflation became weaker and subsequently ignored by politicians when used for their benefit. The increasing laissez faire attitude towards market, promoted by Greenspan as well as both political parties to varying degrees ended with the financial crisis of course and an new era which leaned heavily on the central bank began. Blinder spends time on discussing the policies rolled out in the aftermath of the crisis and the recovery. The author moves on to recent times and discusses Trump and finally the pandemic. These are largely overviews of current events rather than deep analysis of each, though the stimulus of the pandemic will be recorded as a significant fiscal event of the 21st century.A Monetary and Fiscal History of the United States is a memoir by a noted academic economist who also served in government during significantly changing times. It is informative and reflective and is a useful reminder that some of the problems we face now have similarities to the past. I can’t say it is a definitive history as I see it more as the author’s perspective on the time he has been a professional economist rather than a cold calculated book with a thesis to prove. It does has its bias, but for the most part it is articulate as to the utility of Keynesian ideas today and through the past and criticisms about the nature of the theory were defended well.

Very detailed
This is a detailed and authoritative exposition of Federal Reserve history through a monetarist viewpoint. Hetzel’s The Federal Reserve: A New History is an excellent companion from the same Chicago view.

Somewhat Biased History of US Financial Policy
The author, an economist at Princeton, discusses the sixty-year history of US monetary and fiscal policy from 1961 (when JFK took office) to 2021 (when Biden took office and the Covid pandemic began to recede).The 1960s began with the US, for the first time, openly embarking on a Keynesian policy. The economy was to be “fine-tuned” using countercyclical fiscal and monetary policy. Initially, everything was good, and the first few years of the 1960s witnessed an economic boom. But domestic and military spending, combined with low unemployment, led to an increase in inflation. LBJ was reluctant to combat inflation by countercyclical fiscal policy (i.e., raising taxes), although he eventually relented. However, it was too little, too late, and inflation continued unabated.Inflation intensified in the 1970s, thanks to the combination of (1) Nixon’s pick to chair the Fed, Arthur Burns, declining to raise interest rates before Nixon’s reelection in 1972, (2) the oil price shock caused by the OPEC embargo of 1973, and (3) the oil price shock caused by the Iranian Revolution of 1979. Further, this high inflation occurred together with high unemployment, so called “stagflation”.By the end of the 1970s, inflation was so severe that Jimmy Carter chose an inflation hawk, Paul Volcker, to conquer the problem. Volcker reduced the money supply and raised interest rates, driving the economy into a massive recession. But by 1982, inflation had been conquered, and for the next quarter century the economy was largely stable under the leadership of Volcker and Alan Greenspan. However, during this same quarter century politicians moved away from the idea of using fiscal policy to stabilize the economy. Instead, Reagan’s budget-busting deficits in the 1980s made deficit reduction the overriding focus of fiscal policy.In 2008, the world entered the financial crisis and Great Recession. The Obama administration enacted in a fiscal stimulus in 2009 with virtually no Republican support, and Republican congressional victories in 2010 ensured that the stimulus was the last time fiscal policy would be used to combat the Great Recession. In the absence of fiscal policy, the Federal Reserve enacted a dizzying array of lending and other programs — most famously, quantitative easing.The 2010s were a time of steady economic growth, and by early 2020 the United States had both low inflation and very low unemployment. The outbreak of the Covid pandemic in February / March 2020 ground the economy to a halt, but decisive Fed actions (lowering interest rates to zero, creating lending facilities) and bipartisan fiscal stimulus ensured that the economy had a swift recovery by the end of 2020. However, by 2021, partisan politics had re-reared its head, and fiscal stimulus was off of the table.The book is enjoyably written; however, I deduct one star because of the author’s biases. The author acknowledges that they are a Keynesian and goes to great lengths to argue that Keynesians have never been wrong, ever, since 1961. However, I am skeptical that Milton Friedman, Robert Lucas, and Thomas Sargent were as oblivious as the author suggests.

Insightful

I had high expectations of this book and in part it delivered, but I also had some serious disappointments. To be frank, the first 100 pages made me regret that I had purchased the book. That said, I did not (want to) give up and kept reading – and ultimately it was worthwhile. Now, about the first part: the author states (at the very beginning of the book) that in his text “equations are rarer than dodo birds” but in reality there are tens of equations there (and anyway something cannot be rarer than zero, as dodo birds are extinct). Not that I mind a few equations but I was expecting the author to be true to his word. Also, there’s a lot of criticism aimed at the famous economists of the 60’s-80’s, many of whom were Nobel prize winner after all. It’s almost like Alan Blinder is saying “hey, all these guys were wrong”. Some of the criticisms were downright useless and beyond the point (e.g. the author is amazed that Allen Metzler did not discuss more the Fed Reform Act of 1977 in his majestic History of The Fed…how is this information supposed to teach me on the fiscal and monetary history of the US?).In contrast with the first 100 or so pages, the remainder of the book is very informative and pleasant to read. The author describes in detail the actual fiscal policies of the US govt, the clash or harmony between politicians and the Fed, the dominant economic and financial ideas defining the era etc. I really enjoyed reading this “second” part of the book. All in all, if you have the patience to get through the first 100 or so pages the book will leave you with plenty of valuable ideas and historical facts.

Ordered a new book, but I received a book with a poorly cared cover. Full of stains that won’t come off.