Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis (HOOVER INST PRESS PUBLICATION) [Hardcover]

John B. Taylor (Author)

Book Description

Series: HOOVER INST PRESS PUBLICATION | Publication Date: February 25, 2009

AN EMPIRICAL ANALYSIS OF WHAT WENT WRONG

Throughout history, financial crises have always been caused by excesses--frequently monetary excesses--which lead to a boom and an inevitable bust. In our current crisis it was a housing boom and bust that in turn led to financial turmoil in the United States and other countries. How did everything deteriorate so suddenly and dramatically? In Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Hoover fellow and Stanford economist John B. Taylor offers empirical research to explain what caused the current financial crisis, what prolonged it, and what worsened it dramatically more than a year after it began.

The author tells how unusually easy monetary policy helped set the crisis in motion, as interest rates at the Federal Reserve and several other central banks deviated from historical regularities. He explains monetary interaction with the subprime mortgage problem, showing how the use of these mortgages, especially the adjustable-rate variety, led to excessive risk taking. In the United States this was encouraged by government programs designed to promote home ownership, a worthwhile goal but overdone in retrospect. Looking ahead, the author suggests a set of principles to follow to prevent misguided actions and interventions in the future.

Editorial Reviews

Review

Big problems confront us, and responses of immense size are on the table. We desperately need a solid and fact-based analysis so that we get the prescription right. John Taylor provides just that. A must-read for everyone involved. --George Shultz, former secretary of Treasury, State, and Labor and Budget Director

John Taylor is one of the very few who points out the errors that the Federal Reserve made during this difficult period and also shows how they could avoid them. Members of Congress should read this book instead of looking for scapegoats in the wrong places.--Allan Meltzer, author of The History of the Federal Reserve

If you want to read a very short book on how we got into the financial crisis, I don't think you could do better than John B. Taylor s Getting Off Track. --Michael Barone, U.S. News & World Report

A sobering book by a Stanford University economist demonstrates not only how the feds caused, misdiagnosed and mishandled the financial crisis, but also how their responses continue to make matters worse. --Robin Goldwyn Blumenthal, Barron's Magazine

A nifty little book --Susan Lee, Forbes.com

This is a very readable book. Taylor takes the complex and sophisticated research he and colleagues have done over the last several years and translates it into language, accompanied by charts, that is easily absorbed. --
John M. Mason, SeekingAlpha.com

Cogent, thorough and compelling, Taylor sums up his argument in his subtitle: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis. Take a moment to absorb that. Although we're told every day that the crisis arose from failures in the free markets--that it represents a crisis of capitalism itself--an eminent economist has now stepped forward to say, in effect, Nonsense. The markets didn't fail, Taylor argues, the government did. --Peter Robinson, What Caused the Crisis? Forbes.com

If Milton Friedman and I had written as persuasive an analysis as this, one year—rather than 30 years—after the Great Depression began, the United States might have had a typical recession rather than the greatest downturn in history. --Anna Schwartz, author, with Milton Friedman, of The Great Contraction, 1929–1933

This short volume does a masterful job of tracking the stunning financial market and macroeconomic events of 2007 and 2008, and it provides an organizing framework that will enable the specialist and novice alike to examine these events in a coherent setting. --James Poterba, Mitsui Professor of Economics at MIT and President and CEO of the National Bureau of Economic Research

If Milton Friedman and I had written as persuasive an analysis as this, one year—rather than 30 years—after the Great Depression began, the United States might have had a typical recession rather than the greatest downturn in history. --Anna Schwartz, author, with Milton Friedman, of The Great Contraction, 1929–1933

This short volume does a masterful job of tracking the stunning financial market and macroeconomic events of 2007 and 2008, and it provides an organizing framework that will enable the specialist and novice alike to examine these events in a coherent setting. --James Poterba, Mitsui Professor of Economics at MIT and President and CEO of the National Bureau of Economic Research

About the Author

John B. Taylor is the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University. He has served as the director of the Stanford Institute for Economic Policy Research and was founding director of Stanford's Introductory Economics Center.

Taylor's fields of expertise are monetary policy, fiscal policy, and international economics. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on President Ford's Council of Economic Advisers in 1976, as a member of President Bush's Council of Economic Advisers from 1989 through 1991, as economic adviser to the Bob Dole presidential campaign in 1996, and as economic adviser to the George W. Bush presidential campaign in 2000. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Undersecretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation.

In 2007, Taylor was awarded the Adam Smith Award from the National Association for Business Economics (NABE) for his work as a groundbreaking researcher, public servant, and teacher during a career of more than 30 years and his outstanding leadership in the field of economics. Taylor was also awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury and the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, The Stanford Institute for Economic Policy Research awarded Taylor with the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Product Details

• Hardcover: 92 pages
• Publisher: Hoover Institution Press; 1st edition (February 25, 2009)
• Language: English
• ISBN-10: 0817949712
• ISBN-13: 978-0817949716
• Product Dimensions: 8.3 x 5.4 x 0.5 inches
• Shipping Weight: 9.6 ounces (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (17 customer reviews)
• Amazon Best Sellers Rank: #126,153 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

40 of 46 people found the following review helpful:

4.0 out of 5 stars Easy Money, Hard Times, March 6, 2009

By 

D. W. MacKenzie (New London CT) - See all my reviews
(REAL NAME)   

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This review is from: Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis (HOOVER INST PRESS PUBLICATION) (Hardcover)

Much of the popular media has jumped to conclusions that so called Neoliberal policy, has failed, and Keynesian economics has prevailed. Yet many economists remain skeptical about the popular view of the crisis. John Taylor has provided interesting and compelling evidence that easing of credit by The Federal Reserve in recent years caused the boom that led to the Subprime Crisis. This book is important because the media and some economists have blamed this crisis on laissez faire far too quickly, often without citing any real evidence. Taylor shows how actual inquiry into the facts contradicts so much of what you hear from the popular press. Taylor and the Hoover Institution deserve much credit for publishing a book of this quality so quickly.

23 of 28 people found the following review helpful:

4.0 out of 5 stars A Monetarist Perspective of the Financial Crisis, March 14, 2009

By 

Andrew L. Hill (USA) - See all my reviews
(REAL NAME)   

This review is from: Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis (HOOVER INST PRESS PUBLICATION) (Hardcover)

The author, John Taylor, is the originator of the policy guideline that was later labeled the Taylor Rule. His commentary on the subject is held in high regard in Economic circles and he has a lifetime of study and experience in this arena.

The book is focused on the "mistakes" made by the Federal Reserve since 9/11 and the subsequent consequences. The author makes good use of graphs to show historical trends and effects of policy decisions. The book is written with an objective tone and is easy to understand. It is short and can be read in 2 hours. There is a nice Frequently Asked Questions section in the back to cement the authors case.

I gave the book 4 stars instead of 5 because it was not clear what was the cause of all of the policy errors by the federal reserve. An increasing minority of persons suspect political motives are the culprit as the Federal Reserve is not entirely independent. The book is a good critique of the policy decisions of the current decade and a defense of Monetarism and Central Banking in general.

For a good critique of Monetarism, I recommend Thomas Woods book.

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

4 of 4 people found the following review helpful:

2.0 out of 5 stars Honesty - yes, but still a statist's vision, November 26, 2010

By 

Always Learning (CA) - See all my reviews

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This review is from: Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis (HOOVER INST PRESS PUBLICATION) (Hardcover)

I found this book most useful as the insider's view on the operation of FOMC. While it was fascinating to read about Libor-OIS spread and "black swan" in the market, much better and in-depth explanations about the root cause of this crisis and the potential for further damage can be found in Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse and in Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts. Check also George Reisman's blog at [...]

In my view with all my regards to John Taylor he still didn't go deep enough to discover government regulations as CRA and its allegedly independent institutions as Fanny and Freddie, Federal Reserve Bank, and in particular Greenspan and Bernanke at FOMC as the root cause of both 2000 stock and 2006 housing market bubbles. Notably, in the FAQ chapter on his book on page 70 to the questioning of his model validity his answer is "... No model is perfect, but as I always say you need alternative model to criticize a model..." forgetting the bitter failures of the Central Planners of USSR and the Soviet Block to built a central planning economic system as a superior and better alternative to the free-market capitalism. What about if no model can be built as explained by G. Reisman, what about if by removing the government interference a true and unhampered laissez-faire capitalism can self-regulate better? Thus, instead of harsh criticism of FOMC that caused credit expansion they are found guilty only for deviation from the Taylor's rule. He gives too much credit to his rule as a major factor leading to the so called "Great Moderation" without ever mentioning regarding this period the irresponsible policies of several US administrations, WTO, and IMF, surrendering western world manufacturing base to the communist China and the rest of Far East under quite discriminatory and unfair rules, the quiet, and gradual restoration of Keynesianism by Greenspan since late 80's. The author's admission in several places that "...the empirical results are still preliminary..." and his honesty deserved the two starts but no more. John Taylor reminds me about Albert Einstein who never accepted the statistical nature of quantum mechanics and spent most of his life searching for "hidden parameters". For Taylor those parameters currently are Libor-OIS spread, Credit Default Swaps, Libor-Tibor Spread, and Libor-repo Spreads. Unfortunately, no "hidden parameters" or any artificial rule can help a free-market system that is severely hampered by too much government interventionism and the very existence of a number of federal agencies and institutions as FOMS, Federal Reserve Bank, Fanny and Freddy. My general impression about this book is still more about one Central Planner criticizing some other Central Planners that they didn't follow strictly his rule.

As unquestionably John Taylor is one of the best recognized and largely influential economist on the side of Big Government, I'm very curious what criticism he has to offer in regards to George Reisman's theory Capitalism: A Treatise on Economics humbly called Miseanism after his great teacher and mentor Ludwig von Mises. It doesn't look too strange to me that George Reisman's critical views seem ignored by the leading and in-favor economists as Taylor, Sommers, Krugman, Stiglitz much the same way as the Soviet Block economists ignored the works of Ludwig von Mises.