The History and the Role of the US Fed 5
Political aspects of the Reaganomics
Given all of these economic consequences of the 1st
With respect to these questions, there might be following two answers: the first is related with Republican Party’s clever political strategy during the election period. From a political perspective,
“Republicans held the symbolic high ground that the Democratic Party had once own in national politics – the party of growth and prosperity. On the contrary, Democratic presidential candidate proposed painful remedies – a major tax increase and substantial budget reductions to restore fiscal order.” (610)
From historical perspective, the historic positions of the two dominant political parties were reversed for the first time in political history during the 1984 election. “The Democratic Party felt trapped by its past government deficit policy, still tarnished by the inflationary anxieties experienced under
In the meantime, the president’s party had effectively abandoned the old Republican orthodoxy that the Democrats started to attempt to mimic. From 1984 election, Republicans started to appeal their rhetorical loyalty to the idea of a balanced budget and fiscal order.
Of course, however, the conservative party had adopted the opposite in actual policy – an economy driven by increased federal spending (mainly for military subsidies) and increased debt (mainly from tax cuts), the most serious fiscal deficit policy ever attempted in peacetime. The old Republican complaint that deficit spending ultimately led to ruinous inflation was conveniently discarded in the presence of Republican federal deficits.
Secondly,
But from the benefits of hindsight, the
Nonetheless, what most ordinary citizens knew from their own lives appeared to match what the President told them. “The anxiety of price inflation was gone. Most important of all real disposable income per capita was rising throughout the campaign year at an extraordinary pace. In 1980, when
Theoretical implication of the 1980s
From theoretical perspectives, economic policies adopted under the
However, unlike the forward-looking expectations of “supply side economics,” it was “demand side” which pulled and induced the investment. Even under the dire circumstances, it was not capitalist or entrepreneurs but ordinary households and consumers who spent their money leading entrepreneurs to expand their production facilities. In this sense, Keynesian notion of “effective demand” has remained effective even under the dominance of “supply side economics” in economic policy area.
Furthermore,
However, apart from the question related with adequate quantity of money (how can we know and to what extent is the overall quantity of money necessary in a given condition?), his explanation missed the significant role of the velocity of money. If the velocity of money changes due to various reasons, his argument that the Fed should focus on the overall quantity of money, instead of trying to regulate real interest rates, would lead us in the wrong direction.
In sum,
Concluding remarks
It seems necessary for me to conclude this review essay by introducing the merits of this book. The first virtue that I would like to mention is its style and structure. It is written and organized in plain English. Even those readers with basic level of English proficiency would not find any serious difficulties in understanding the main contents of the author’s arguments. Even though it seemed to be somewhat thick compared to ordinary paperbacks at first glance (717 pages for main contents and total 798 pages including reference, appendix and index), the way of writing was easy to follow and even exciting. It took a week for me to finish reading the book.
Second, the book is well organized. The book consists of four major parts, each of which mainly deals with the Fed’s institutional characteristics (“Part one: secrets of the temple”), its history and traditional roles (“Part two: the money question”), the Fed’s monetary policies in 1980s and their repercussions (“Part three: the liquidation”) and finally evaluations of the Fed’s economic policies in socio-political perspectives (“Part four: the restoration of capital”). Every chapter is closely connected with each other.
Third, this book is based on wide range of references, data analysis and intensive interviews. As you can see, the author spent for about 5 years to gather basic data and references. He also conducted in-dept interviews with former Fed chairman and many government officials in order to represent policy debates and economic climates around the Fed and the White House at the time. The author’s honest and meticulous descriptions of the affairs offer enough information about the Fed and
Fourth, this book contains wide range of knowledge about the
In sum, this book will be a very helpful guide for those who want to understand the history of US economic affairs – how does it develop and where will it go. Instead of doing laborious work for myself, I would like to finish this essay by citing the following precise praises for the potential readers: “startling and revelatory as well as probing and incisive. It is not only a major journalistic achievement but a major public service, for it is an immensely valuable addition to our understanding of the hidden forces that shape our lives.” – Robert A. Caro; “I expect this book to shake up
* Reference for this review
Krugman, P. 1990. The Age of Diminished Expectations – U.S Economic Policy in the 1990s,
------------. 1994. Peddling Prosperity – Economic Sense and Nonsense in the Age of Diminished Expectations,
* Further reading list about the history and roles of the Fed and the
Greider, W. 1992. Who Will Tell the People – The Betrayal of American Democracy,
Rothbard, M. 2002. A History of Money and Banking in the United States – The Colonial Era to World War Ⅱ, Alabama: Ludwig von Mises Institutes (deals with the history of the US central bank system from the perspective of Austrian school of economics)
Stiglitz, J. 2003. The Roaring Nineties – A New History of the World’s Most Prosperous Decade,
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