December 30, 2006
Arthur And I
I was admittedly sticking my neck out when I attempted to lend some respectability toward the late President Ford's ill-fated WIN campaign. Sure enough, Jim Hamilton was all over it, and in fact I find it hard to argue with very much of what he has to say (as usual):
...I think one great disservice of [the Whip Inflation Now] campaign was to cultivate the misperception that inflation is somehow the responsibility of ordinary U.S. citizens. In my view, maintaining the purchasing power of a dollar is instead exclusively the responsibility of the people who control how many dollars get printed.
As I hope my first post on the issue made clear, I really do agree with that. To quote myself:
Seen through contemporary eyes, it is clear that the President Ford's speech hopelessly entangled shocks to relative prices with ongoing inflation of monetary origins.
Where I think the Econbrowser/macroblog debate might get interesting is here (sampling again from the Hamilton post):
The current academic consensus, which has emerged from some very well done research such as Northwestern Professor Giorgio Primiceri's forthcoming study in the Quarterly Journal of Economics or respected Fed researcher Athanasios Orphanides' 2002 paper in American Economic Review, has concluded pretty clearly that at least part of the cause of the 1970s inflation was bad data and a misunderstanding of how the economy works. But I am forced to conclude also that, in the face of such uncertainties, Nixon and Burns appear to have been wanting to err on the side of doing whatever would most help them win the next election.
I don't think that is a mischaracterization of the academic consensus, but what I am not so sure of is the leap to the conclusion that Burns was largely, and inappropriately, motivated by political concerns.
In part, the consensus that mistakes were an inevitable consequence of the state of knowledge at the time makes the appeal to other motivations almost unnecessary. And I would add to the list of the real-time uncertainties the unsettled question of how the Federal Reserve fit into the overall scheme of government policy making. The primacy of central bank independence was an idea that was at least a decade away -- the first systematic study cited in Carl Walsh's New Palgrave entry on central bank independence is Robin Bade and Michael Parkin's 1984 working paper (although Parkin's CV does contain a reference to an early version from 1978). It is also worth noting that Wright Patman was fully devoted to bringing the Fed under the Congressional heel, a reality that any good steward of the central bank could not have ignored.
On top of that, the conclusion that Burns spent a good part of his time in Nixon's hip pocket is not a slam dunk. Consider this passage from Martin Mayer's excellent book, The Fed (page 144):
Wright Patman, the shrewd, charming, lazy populist from Texarkana, was chairman of the House Banking Committee from the 1950s into the 1970s. He was no friend of the Federal Reserve, which he felt had extended the Great Depression by reducing bank credit in 1937... In the 1970s, when I knew him, he liked to say that the Constitution gave the House of Representatives the power to "coin money and regulate the value thereof" -- and that Congress farmed out its power to the Federal Open Market Committee."
One notes the exactitude of Patman's placement. Not the executive branch, for there is no law requiring or even suggesting that the Fed report to the president or the secretary of treasury, and the most either of them can do is bitch about the Fed's failure to be a team player -- as Harry Truman and Lyndon Johnson and Richard Nixon did. (Nixon, typically, did it through an unprecedented campaign of personal vilification of Chairman Arthur Burns, anonymously out of the White House.)
That does not sound like the stuff of wink-wink political accommodation.
Honestly, I don't know the truth of Burns' tenure. I don't even know what I think the truth to be. What I do know is that it is a lot more complicated than is often suggested.
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