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A Term at the Fed: An Insider's View

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There is no question that the Federal Reserve Board (the Fed) is the world's most powerful institution, even stronger than the United States military. The members of the board understand this power, and follow an effective code of secrecy concerning their plans. However, representatives of the board are regularly required to speak in public, even testify before Congress. Therefore, Alan Greenspan, the chairman of the Fed, has raised the art of obfuscation to a level never seen before. I have watched tapes of him testifying before Congress and have never been exactly sure what he is saying. Apparently, this trait is so ingrained in him that when he proposed marriage, his wife wasn't exactly sure what he was talking about.
Laurence H. Meyer served a term at the Fed from 1996 until the end of January, 2002. Therefore, he was there during the incredible boom of the late nineties and the economic downturn of the early years of the twenty-first century. This enormous contrast in economic performance means that the debate within the Fed, as related by Meyer, covers the entire range of positions.
In the early years, the debate was always about whether to raise rates, in order to stave off the possibility of inflation. During most of that time, Meyer and Greenspan were on opposite sides of the discussion. Greenspan took the position that the incorporation of new technology was causing a dramatic increase in productivity that was not reflected in the economic data. Meyer did not believe this until the data forced the conclusion.
The core of the argument was the value of NAIRU (Non-accelerating Inflation Rate of Unemployment), an economic statistic that is not universally accepted to say nothing of having ever been accurately measured. It is the level of unemployment considered the bound, where if the rate drops below the NAIRU, then employers are forced to increase wages in order to attract and retain workers. The end result will then be a strong inflationary pressure. It was very illuminating to read Meyer's account of the discussions inside the Fed regarding whether this "mythical" value had indeed been reached. Those discussions reveal a great deal of what actually goes on inside the Fed and how so much of their work is on the order of reading the tea leaves. While the consequences of their actions are very practical and dynamic, it also shows that the governors are sometimes forced to rely on unproven economic theories to make their decisions.
The last years of Meyer's term were spent in cutting interest rates, as the economy began to enter a deep slide. In this case, the discussions were completely different, with the theory now being based on deflationary models. Deflation is what occurred in the depression of the thirties and in Japan in the nineties. Prices begin dropping, leading to purchasing being delayed, hoping for a better price. If a feedback loop begins, it can be disastrous, considered even worse than inflation. The governors of the Fed became concerned about that possibility, and the arguments were now over how much to cut interest rates and how fast to do it.
Those who are hoping for a juicy expose of dramatic arguments or revelations about personalities will be disappointed with this book. There is very little about Alan Greenspan that was not already known and the arguments between the Fed governors are described as being quite tame. In some ways the descriptions seem too tame. Human nature and the major consequences of their actions dictate that the discussions would be carried out more passionately than Meyer describes.
I commend Meyer for his approach in writing this book. So many of the books written by former government officials are "explanations" of why they were right and so many others were wrong. They are filled with as much dirty linen as possible, without really explaining how decisions were arrived at. Meyer describes how things were done at the Fed, how it is run under Greenspan and how decisions were made. While he does criticize Greenspan, it has none of that spiteful tone that so many others use. Therefore, if you really want to know how the Fed makes the decisions that drive the world economy up or down, then this is the book to read.

Years ago, I was intrigued with the idea of "The New Economy" and wanted to educate myself on the topic. I began with Woodward's Maestro, then picked up some textbooks on Macroeconomics, all the while keeping up with the business news. Dr. Laurence Meyer, known as a "hawk," popped up in the news frequently, and caused many Wall Street types to tremble ...which I found very amusing. I also enjoyed his sense of humor, transparency and trustworthy (if not always welcome) insights which turned up in the news as well. This set me up to grab his book when it came out.

When "The New Economy" fell apart, I, like everyone else, wondered what happened and where we would go from the wreckage. I've been waiting for this book.

Humorous asides that allow one to vicariously enjoy Meyer's trip into "DC land" while studying an account of the economic history taking place during his term, make the book hard to put down. The likable Meyer reveals an endearing humility and strength of character in drawing himself not only as person who is proud of his accomplishments, but one secure enough to share his foibles and fears for the amusement of the reader. Most importantly, Meyer's experience as a professor shines as he magically makes complex economics concepts easier to understand for non experts such as myself.

If you want another tome about Greenspan, this one is not going to tell you anything earthshaking or new. But if you are interested in a educational report written by an extremely knowledgeable, intelligent, forthright, and witty man, on the workings of the Fed during an intriguing time in US economics , Meyer's book is for you.

If you are looking for a tell-all confessional about the wild coke-filled parties that take place before meetings of the FOMC, this book will be sorely disappointing to you. But if you want to be reassured about the level of economic discourse at the meetings of the FOMC, you will also be disappointed. More than one academic economist has commented on the low level of economic discourse in Washington (see, for example, 'Peddling Prosperity' by Paul Krugman or 'The Roaring Nineties' by Joe Stiglitz). This book will do little to disabuse readers of the notion that most economic policy is made with a good deal of intuitive guesswork (e.g., about where the NAIRU is in this case) and great uncertainty about even the current economic situation (e.g., the lack of evidence on productivity growth until years after the Fed was being forced to make decisions). While hardly reassuring, this probably gives a pretty good idea of how most policy is made!

The book has some interesting parts (e.g., the power of Mr Greenspan, the importance of consensus, the lack of internal discussion outside of the meetings, and the great uncertainty about even short-term policy making). But it is very slow--no revelations about the personalities involved (including Mr Greenspan) or the internal politics of the Fed. Moreover, if you have been reading the popular press over the past decade (e.g., The Economist or Business Week), most of the economic discussion (e.g., over productivity growth) will be old news. So should you buy it? If you want a primer on how the Fed works, this is probably a good place to start. Just drink lots of coffee before attempting to read it!

Given Meyer's background as an award-winning macroeconomic forecaster, well-credentialed academic and professor, and six-year member of the Board of Governors of the Fed, it is little surprise that this account of his term at the Fed is truly insightful in several dimensions.

Meyer does a skillful job of interpreting the flow of economic events from mid 1996 to early 2002 within the intellectual framework of mainstream economics, a "school" that includes Alan Greenspan and the influential Federal Reserve staff. That this was such an interesting period in U.S. economic history --- including the late 1990s productivity acceleration, the Asian and Russian Crises, the bursting of the equity bubble, and 9/11 --- means there are plenty of potentially confusing cross currents that must be made to fit into a single framework, and Meyer does this clearly and without resort to much jargon.

As a long-time professor of monetary economics, Meyer knew well the organization and mechanics of the Fed. What he learned from his time there and reveals in this book is the real functioning of the Fed under Greenspan, especially in its conduct of monetary policy. The chapter entitled "Come with Me to the FOMC" is an interesting and insightful blow-by-blow account of a meeting of the Federal Open Market Committee, the policy-setting body of the Fed. For the advanced student of monetary policy, the book develops the `playbook for monetary policy' in the Greenspan era, putting in context the Fed's "risk management" approach and penchant for "gradualism."

After serving closely with Alan Greenspan for nearly six years Meyer has little but praise for Greenspan's abilities as Fed Chairman. While Meyer clearly would adopt a more open and engaged style than Greenspan if he were chairman, he came to respect the Chairman's go-it-alone, no-nonsense, style. If there is a cautionary note it is that any successor to Greenspan would need to quickly establish themselves in the eyes of the other FOMC members and adopt Greenspan's technique of "leading from the middle." It makes finding a Greenspan replacement sound like a rather daunting challenge.

Finally it is refreshing to hear the candor and humility with which the tale is told. As a former leading member of what is arguably one of the world's most powerful institutions, he could have been excused for exaggerating his own importance and tooting his own horn. Rather we get an honest description of how he and his colleagues struggled to understand the remarkable performance of the economy in the second half of the 1990s and how it responded to a series of shocks starting in early 2000. A key lesson of that period made clear by this book is that the conduct of monetary policy is far too difficult and far too important to be left to amateurs and that we need more people like Meyer to sit at the big oval table at 20th and C streets.

It's rare that a former governor of the Federal Reserve takes pen in hand to write about Fed politics, policies and economics, which makes Laurence H. Meyer's A Term At The Fed : An Insider's View all the more surprising and important: here former Fed Governor of the Board Meyer provides an intriguing insider's viewpoint of workings behind the scenes at the Fed. The Federal Reserve has been called the most powerful institution in America, but relatively few modern Americans have any inkling of how it operates or makes policy decisions. Meyer's firsthand analysis provides an excellent historical overview and survey of the Fed's operations and should be considered essential reading for any American businessman and/or economist.

In a remarkably eloquent and narrative style, Meyer manages to portray the activities at the Fed and Greenspan. His discussion on the asian financial crisis, the famous quote - "irrational exuberance", stock market bubbles, and 9-11 attacks are informative and provide a rings side view of policy making at the highest levels. Though, the author touches upon the events following 9-11 in about 3-4 pages (opposed to the chapters on the other crises and Greenspan's personality) itself, this reviewer felt that more impetus could have placed to hihglight how the Fed helped financial markets back on their feet after the terrorist strikes. Meyer provides an excellent snap shot of the events leading to equity bubble and how much the Fed tried to influence the circumstances (proactively and reactively) using monetary policy. One can also get a good understanding how the FOMC operates on a daily basis.

The easy-going, down-to-earth narrative style and some amount self-effacing humor makes the book interesting. One can hope that his comment that Meyer wanted to return to private sector since "running down one's wealth as a governor (paid around 100-125k) may not allow to retire well" is an attempted joke!

This concise book is a must read for both the casual investor and the seasoned fed watcher. Former Fed Governor Larry Meyer provides the first book length account of the "Secrets of the Temple" as experienced by an actual member of the Open Market Committee. In a jargon-free style, Meyer chronicles the intellectual ferment at the Fed as Alan Greenspan and company struggled to come to terms with the implications of the "New Economy", debated the existence of a stock market bubble and dealt with the calamity of September 11th. Neither a tell-all memoir nor a self-congratulatory tome, Meyer is scrupulously honest in admitting his own mistakes while unstinting in his praise for the wisdom of Chairman Greenspan. Nevertheless, the picture he paints, of a nearly all-powerful Chairman and staff will likely be a cause of concern for those concerned about the performance of a post-Greenspan fed. An excellent book for anyone interested in the economy or the conduct of monetary policy, "A Term at the Fed" should be required reading in all introductory macroeconomics classes.

This is a wonderful book -- well-written, funny, and intelligent. Laurence Meyer served as one of the governors of the seven-member Federal Reserve Board, all of whom are appointed by the U.S. president. While Meyer was selected by Clinton and appears to be a Democrat, he was known as an inflation hawk, and was reputed to have clashed with Chairman Greenspan -- something Meyer denies in this book.

Meyer served on the board from 1996 to 2002, during the rapid rise and nearly-as-rapid fall of the U.S. stock market, and a period in which numerous international financial crises (Asia, Russia, LTCM, 9/11) took place. This is a unique look at the inner workings of the Fed and can be enjoyed by the general reader.

For most people the Federal Reserve is a familiar name that we do not know much about. We know that the Federal Reserve exists and they have a Chairman - who for the past long while has been Alan Greenspan, but we don't know much about how it is organized, it's relation with the Federal Government, or how it functions. We know they have something to do with interest rates and unemployment, but not how they make their decisions or what influences those decisions.

Consequently, the press and the public speculate a great deal about the Federal Reserve (sometimes beyond the point of absurdity). People ascribe all kinds of power to the Fed; even the subtitle of this book calls the Fed the world's most powerful institution. Well!

Governor Meyer writes very well and evokes an atmosphere of reserve at the Fed that seems authentic to me (a complete outsider). He describes the kinds of discussions that go on within the Fed, it's very formal atmosphere, how the Governor's work with their staffs, and how the Chairman runs things. This is all tremendously fascinating to me.

The author is open about his own political leanings, but demonstrates how non-political the Fed really is and how seriously they take their mission of maintaining price stability while minimizing unemployment. They wrestle with where the boundaries are, how to best measure the true state of the economy, and how to act without being too blunt or distorting the markets away from neutrality.

Governor Meyer is frank in his assessment of Alan Greenspan. He is mostly favorable, but does pick some nits about Chairman Greenspan's willingness to talk about public policy which is outside the purview of the Fed. Of course, Governor Meyer was a bit of a lightening rod during his own tenure at the Fed, but that was more because he was willing to be rather open in his views of monetary policy, not public policy.

This is a terrific and valuable book and I recommend it to everyone as part of their civics education. It is readable without any special knowledge of the Federal Reserve or monetary policy. Of course, the more you are aware of the issues surrounding monetary policy the more lively the book will be for you.

There are helpful charts in the appendix and very helpful footnotes and an index.

As a Federal Reserve Board Governor from 1996 to 2002, Laurence Meyer played an active role in forming economic policy for the United States.

Serving during one of the wildest and most tumultuous times in our recent history, he offers an insider's view of life at the Fed. Appointed by President Clinton in 1996 to a partial term, Dr. Meyers witnessed the Fed's reaction to "the new economy," "irrational exuberance," the Asian financial crisis, the Russian Default, the collapse of Long-Term Capital Management, the bursting American Stock Bubble and the September 11, 2001 terrorist attacks.

In a well-written and readable book, Meyer re-lives the Fed's closed-door debates on these matters. He gracefully weaves issues with anecdotes about the people involved. The reader is transported behind the closed doors of the Fed and into the meeting room where policy matters are made.

Personally, I was surprised at the quality and formality that debates on issues the Fed's agenda assumed. Having become accustomed to the "pin everything on the other party" approach taken by Congress, I was shocked that monetary debates continue to assume an academic air.

Meyer, who is the first former fed member to pen a book about his experiences, has provided fed watchers with an extraordinary look into a fascinating period of our economic history. It is well-worth reading.