Most Helpful Customer Reviews
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10 of 11 people found the following review helpful:
4.0 out of 5 stars
An informative, not juicy look inside the Federal Reserve, July 7, 2004
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.
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8 of 9 people found the following review helpful:
5.0 out of 5 stars
Educational and witty account of a spectacular Fed term, July 8, 2004
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.
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7 of 8 people found the following review helpful:
5.0 out of 5 stars
Term at the Fed: Insightful & Informative, July 8, 2004
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.
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