Economic Puppetmasters: Lessons from the Halls of Power [Hardcover]

Lawrence B. Lindsey (Author)

Book Description

Publication Date: December 1998

An insider's perspective on the bureaucratic structure of governmental institutions that shape economic policy, and the incentives and limitations of the individuals who head them.

Editorial Reviews

From Publishers Weekly

Despite the title, there are no puppetmasters in Lindsey's view, and the interviews with such figures as Alan Greenspan, Helmut Kohl and George Soros seems more concerned with describing describing the office furniture than the subjects' deep thoughts. Lindsey, a former governor of the Federal Reserve Board, offers a detailed snapshot of the world economy in the autumn of 1998. Its strength is its breadth as Lindsey moves seamlessly back and forth in time, from theory to practice and into every part of the economically developed world. Its weakness is sloppy writing, repetitiveness and an uncritical enthusiasm for the existing shape of the free market. Instead of simply stating that democratic political institutions created undemocratic economic institutions, Lindsey writes: "As a result, each role was demanded by, or at least had its continued existence sanctioned by, the democratic institutions of their respective countries, even though, in many respects, the role being demanded had undemocratic aspects." In the end, this is a partisan work that lays groundwork for a Republican economic platform and rises to the defense of Republicans from Herbert Hoover to Ronald Reagan while offering approving explanations of Milton Friedman-style supply-side economics. Serious students of political economy will overlook the stylistic lapses for the author's rare combination of expertise, experience and access. Moderate Republicans, given Lindsey's intellectual defense of tax and spending cuts, will want to adorn their shelves with this book. Lay readers and market skeptics will have trouble making it past the first chapter.
Copyright 1999 Reed Business Information, Inc.

From Booklist

Lindsey was a member of the board of governors of the Federal Reserve System from 1991 to 1997, a policy advisor to President Bush, and a member of President Reagan's Council of Economic Advisers. His Growth Experiment: How the New Tax Policy Is Transforming the U.S. Economy (1990) was a defense of supply-side economics and Reagan tax policy. Lindsey now serves as a resident scholar at the American Enterprise Institute, a conservative public-policy think tank. He explains here how those who pull the world's economic strings make their decisions and shows how those decisions affect the world's and national economies. He suggests that there are systemic limits to the power of even key decision makers, and he argues that the decision-making systems in place today are ill suited to current needs. The decision makers Lindsey profiles are Alan Greenspan, chairman of the U.S. Federal Reserve Board; Eisuke Sakaibara, vice-minister of finance in Japan; Helmut Kohl, then chancellor of Germany; and financier and investor George Soros. David Rouse

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Product Details

• Hardcover: 215 pages
• Publisher: Aei Press; 1st edition (December 1998)
• Language: English
• ISBN-10: 0844740810
• ISBN-13: 978-0844740812
• Product Dimensions: 9.2 x 6.2 x 0.9 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.0 out of 5 stars  See all reviews (3 customer reviews)
• Amazon Best Sellers Rank: #2,207,193 in Books (See Top 100 in Books)

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8 of 8 people found the following review helpful:

3.0 out of 5 stars Interesting read but better reading is available, July 21, 2002

By 

Dan E. Ross "Dan Ross" (Frisco, Tx USA) - See all my reviews
(REAL NAME)   

This review is from: Economic Puppetmasters: Lessons from the Halls of Power (Hardcover)

Having left Wall Street over a year ago I still have a place in my heart for the financial markets. I find that my focus in reading is increasingly turning towards history, the issue of worldwide standards of living and how economic growth in various parts of the world varies so dramatically.

Economic Puppetmasters by Lawrence Lindsey, the current economics advisor to the President, is an excellent book for those that are interested in (1) economics (2) the history of monetary policies in various economic areas such as Japan, Europe and the United States and finally, (3) the inextricable link between politics and the economy.

I was going to rank this book a solid four star book because it provided some really good analysis. However, after thinking about it for a day or so, I am deducting a full star from the book (a three star ranking) due to the partisanship rhetoric and a complete lack of attention to the national debt.

In my opinion the real value of this book is Lindsey's explanation of why Japan has been in an economic funk for 10 + years. Another element of excellent insight on his part is that he provides readers with an excellent explanation of the pros and cons of the Euro and difficulties that will likely occur in the next ten years from the establishment of such a central bank / currency. The book provides readers with a great history lesson into various monetary regimes.

In my opinion Mr. Lindsey, like many financial authors, is HIGHLY deficient in one key area. He never talks about the U.S. national debt and how it has gone from $960 billion to $5.6 trillion in 20 years. The explosive growth in the national debt has caused growth rates to be overstated because they are unsustainable. At the end of the day you have to pay interest on the debt and you have to repay the debt. What about the fact that America will go from 7 working people per retiree to 2.5 within 20 years? This will cause social benefits to soar with fewer workers to pay for it? But Mr. Lindsey doesn't feel this is important. Instead he takes shots at previous administrations for their "deficient views." You can learn a good amount from reading the book but Mr. Lindsey and the rest of the Politicians / economists disgust me because their desire to get re-elected is going to leave a nation bankrupt or heavily indebted within 20 years. Nothing short of a tragedy.

Most of my reviews are in business / economics and I encourage people to read them, whether here on Amazon or at my personal website. If you are interested in economic history book I would encourage everyone to read The Worldly Philosophers by Robert Heilbroner since it is more international in scope and deals with the lives and times of the most famous economists in history. If you are interested in economic development I would encourage you to read Hernando DeSoto's Mystery of Capital but note his lack of focus on corruption in certain countries. A great general business book is by the management guru Peter Drucker entitled "The Essential Drucker."

12 of 14 people found the following review helpful:

4.0 out of 5 stars Larry Lindsey Looks at the Limits of Policymakers' Power, November 27, 1999

By 

James B. Delong "brad_delong" (Berkeley, CA USA) - See all my reviews
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This review is from: Economic Puppetmasters: Lessons from the Halls of Power (Hardcover)

This is a book about four movers and shakers in today's global economy: Alan Greenspan, Eisuke Sakakibara, Helmut Kohl, and George Soros. Lindsey does a very good job of describing what they do--what their jobs are--who they are, and how they think. His capsule descriptions of how they view the world are broad-brush descriptions, lacking details and subtlety, but are amazingly accurate for all that. Alan Greenspan is the contrarian, Eisuke Sakakibara is the mandarin, Helmut Kohl is the historian, and George Soros is the speculator.

But the book is more than just about these four individuals. It is a book about the institutions that they boss and serve: America's Federal Reserve (that Alan Greenspan heads), Japan's Ministry of Finance (where Sakakibara is the senior civil servant), the West German government (that Helmut Kohl stood at the top of for more than two decades), and the world of the speculative hedge funds (of which George Soros with his Quantum Fund is the most visible and public example). And this is where the value-added in the book truly lies. For no single individual, no matter how talented, can function without a staff. And no single individual whose mindset is out of sympathy with that of the staff or the environment can get much of anything done.

Lindsey's summaries of the institutional histories and of the typical patterns of thought of the Federal Reserve, the Japanese Ministry of Finance, and the other institutional locations are--I think--the best part of the book. These are matters that are almost never covered in the press. Journalists would much rather discuss the personalities of Secretary of the Treasury Robert Rubin and Secretary of State Madeleine Albright than the cultures and orientations of the people who staff the bureaucracies they head--the Treasury believing that it is engaged in a positive-sum game of maximizing international economic integration, while State believes that it is in a zero-sum negotiation of exchanging favor for favor. And these cultures are very important.

Moreover, to the extent that it is not culture but individuals that matter, it is groups of individuals: groups of people who think more-or-less alike and work together. Journalists like to speak of the "Rubin Treasury." But it would be much more accurate to speak of the "Rubin-Summers-Froman-Lipton-Geitner-Wilcox-Truman-Sandberg-and a bunch of others" Treasury. Arcs of policy grow and shrink gradually over time, as the consensus least common denominator of agreement among senior policymakers armed with arguments by their staffs gradually shifts. So tracking the thoughts of the institutions rather than the off-the-cuff thoughts of individuals is very important.

The heads of such organizations are in positions in which action is much easier if taken along than across the grain because of the orientations and beliefs of those who surround them. Neverthless, they are not the puppets of their institutions. And they have powerful opportunities to surround themselves with like-minded people.

Thus my first quarrel with Lindsey's book: throughout it there is a tone of policy pessimism--that even powerful people are very tightly constrained by institutions and history, that strings are being pulled elsewhere by the system, and that the High Politicans spend most of their time frantically trying to pretend that they are leading the parade.

This certainly was not my experience in government. For example, the 1993 deficit reduction program was not dictated by history or institutional patterns but was instead an act of political will, guided by what turned out to be (we hope) correct economic theory--so far, so good. The amount of policy reform and change that can be achieved is limited, and the work is hard, but high officials are not tied down like Gulliver captured by the Lilliputians.

I found myself wondering whether Lindsey might have been generalizing from his own experience in the Bush administration, where there was little room for economic policy. But it was not the fault of the "system" that the strings were held tightly. Bush policy was tied down by its own actions--it was overstrong against itself--crippled by high bureaucrats who did not trust their staffs, rash convention-speech promises, and a lack of interest in economic policy at the very top of the administration. It seems to me that it was the exception not the rule.

I have a second quarrel--more a quibble--with Lindsey's book: his analyses would be more convincing (and, I believe, more correct) if he would be less attached to defending the hard-to-defend economic policy record of the Reagan administration. As it is, his discussion of "supply shocks" muddles the concept by confusing true positive or negative shifts in potential output or the price level with changes in expected inflation. He thus attributes to the Reagan administration things that could only be done (and were done) by the Federal Reserve--as if you were to thank your plumber because the overhead light in the living room now works. The Volcker Fed's decision to press for disinflation even in the face of Reagan's overexpansionary fiscal policy was a gutsy move, and it is not fair to rob them of credit for the successful decline in expected inflation that was its principal positive result. But let that pass. For there is a third, more important, quarrel that I have...

Throughout Lindsey's book there is an undertone of pessimism. Lindsey anxiously looks back to the Great Depression, when policymakers armed with inadequate economic theories and constrained by institutions, ideologies, and politics created the worst macroeconomic disaster ever. He draws gloomy analogies between 1929 and 1999. There is, however, one very important difference between 1929 and 1999 that Lindsey does not note: we in 1999 remember what happened after 1929. And that difference is a key difference: that we remember history means that we cannot be necessarily condemned to repeat it. We can--and do--take steps to head off a 1929-style macroeconomic disaster.

Thus I am much more optimistic about the future than Lindsey is.

But these three points of disagreement that I have with the book do not mean that it is a bad book. It is quite a good book: it offers a form of institutional analysis and description that is hard to get anywhere else, and that is very important to understand if you are to understand how our economy works today.

13 of 17 people found the following review helpful:

2.0 out of 5 stars Bad Analysis that Still Deserves Attention, January 12, 2000

By 

Robert Bagel - See all my reviews

This review is from: Economic Puppetmasters: Lessons from the Halls of Power (Hardcover)

This book certainly merits reading because Mr. Lindsey is the key figure for the economic policy of George W. Bush. Having thought that Mr. Lindsey's remarks as a Fed governor were insightful, I was enthusiastic about this book. I finished the book greatly disappointed in Mr. Lindsey's logic, and concerned that he could be a key figure in future U.S. economic policy.

I found Economic Puppetmasters to be extremely unbalanced in presenting information, frequently lacking in factual basis for Mr. Lindsey's points, and at times even illogical. Even though Alan Greenspan is featured in the book and the power of the Fed is recognized, it is criminal that Mr. Greenspan's predecessor Paul Volcker is not mentioned in the book even once. A monetarist point of view would argue that it was Mr. Volcker's courageous policies that laid the groundwork for today's economic prosperity. Mr Lindsey claims it was Ronald Reagan's change of tax policy and firing air traffic controllers. When discussing the great depression, the Fed's inept monetary policy after the stock market crash of 1929 is completely ignored in favor of how Keynes' insights into the period justify his being an economic deity, even though Lindsey later says, " Keynes was the name associated with the failed policy of the 1970's" (p. 180). I hoped that Mr. Lindsey would address the fact that maybe Keynes' name is associated with the failed policies of the 1970's because Keynesian analysis is not correct. Instead, Democrats are blamed for not implementing policy correctly. It is interesting that similar to the omission of Fed Chairman Volcker from the book, Milton Friedman is mentioned just once, not in the context of economic analysis but in the form of a comic quote that jibes at bureaucrats (p.80).

Economic Puppetmasters is also quite frustrating in that claims are made with little documentation or well-constructed reasoning. While a Shakespeare quote will be carefully footnoted, an assertion that grain prices fell because there were more cars and less horses is plugged into an argument without any data or footnote to back it up. I guess we just have to take Mr. Lindsey's word for it. The prime example of how Mr. Lindsey cannot keep his story straight (even through two paragraphs!) can be found on page 179. Mr. Lindsey begins by saying that in January 1980 consumer prices rose 1.4 per cent, and that this rate exceeded the average annual rate of most years in the 1950s and 1960s. If that pace continued inflation would be 18.2 per cent for the year. He goes on to state how President Carter asked people to stop use of their credit cards, and how GDP collapsed and unemployment was high. The next paragraph begins "With deflationary risks of that magnitude . . ." Yes Mr. Lindsey, falling GDP and rising unemployment are often associated with deflation, but you just argued that monthly inflation then was higher than most annual inflation of prior decades! Was it that Carter's policies were so effective that they took us from inflation to deflation risk in six months? I do not think you mean that, and I hope you do not think that your readers are so stupid that such inconsistencies will pass under the guise of economic insight.

Yes, this book is worth the read because it gives insight into the thought processes of a former Fed governor, and someone who may have a major say in U.S. economic policy. The disturbing thing is: the book reads like a C grade undergraduate paper and one may be left more frightened than enlightened by Mr. Lindsey's words.