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William McChesney Martin _1951 -1970 _

VIEWS: 4 PAGES: 23

									        THE ANGUISH OF CENTRAL BANKING:
        ANOTHER LOOK AT THE GREAT US
        INFLATION AND ITS AFTERMATH

          by Alex Cukierman




Comments by Ricardo V. Lago
Arthur F. Burns
(1970 -1978 / Nixon , Ford , Carter )
“RECESSION AVOIDANCE PREFERENCE”
Burns’ most famous quote



   “the Federal Reserve should not be
    expected to cope with inflation single-
    handedly. The only effective answer, in his
    opinion, lay in some form of incomes
    policy”
G. William Miller
  (1978 -1979 / Carter )
“RECESSION AVOIDANCE PREFERENCE”
William McChesney Martin
(1951 -1970 / Truman ,Eisenhower , Kennedy ,
Johnson , Nixon )
“INFLATION AVERSION PREFERENCE”
William Martin :
“The Thomas Becket Syndrome “
Martin’s most famous quote



 The job of the Federal Reserve is


"to take away the punch bowl just as
  the party gets going,“
Paul Volcker
(1979 -1987 / Carter , Reagan )

“INFLATION AVERSION PREFERENCE”
Alan Greenspan
(1987-2006 / Reagan , Bush I , Clinton , Bush II )

“RECESSION AVOIDANCE PREFERENCE”
During the 1950s,
Greenspan was one
of the members of
Ayn Rand's inner
circle, who read Atlas
Shrugged while it was
being written
Greenspan’s split personality
   On the one hand , he pursued ultra –
    activist monetary policy . He was the
    ultimate interventionist


   On the other , he confused the real world
    with Ayn Rand’s “Atlas Shrugged” word .
    “Rational Self-interest” is the best form of
    natural and spontaneous regulation
Greenspan neglected important
contributions to Economics
  Separation between ownership and control
 Principal /Agent Problem
 Asymmetric Information
---------------------------------------------------
 Outcome : The “managers” did indeed pursued
   “rational self interest” at the expense of the
   shareholders , creditors , and taxpayers
 Admission : Recently , Greenspan has yielded
   that he was wrong : the real world is not quite as
   simple as Ayn Rand’s “Atlas Shrugged”
This is a very controversial claim :
to say the least
   “Greenspan’s contribution was that he did
    not spoil the hard earned stability under
    Volcker and utilised it to devote more of
    the policy effort to stabilization of the real
    economic activity without endangering
    price stability” ( page 23 , 1st paragraph)
Conclusion that I would have
expected
   Four different versions of Casablanca
    corresponding to four different Humphrey
    Bogarts :
     Burns Bogart
     Volcker Bogart
     Greenspan Bogart
     Martin Bogart
Cukierman’s Conclusion :There is only one version of
Casablanca irrspective of who is Boggart

    Historical Determinism in Central
    Banking Policy
   Should we conclude that from these findings that if either Volcker
    or Greespan had been appointed as chair of the Fed at the
    beginning of the seventies and had the faced the same external
    circumstances as Burns did , they would necessarily stick to
    their respective rules ? . I Believe not .

   Rather the policy rules of both Volcker or Greespan arose as
    endogenous reactions to the main problem monetary policy
    had to tackle when they were appointed .Volcker was appointed
    when inflation came to be considered the number one economic
    problem . So he developed a conservative rule .Greenspan came
    into office when inflation has been stabilized under Volcker
    .Therefore , he could deploy more efforts to the unemployment
    objective in the Fed dual mandate
   ( Conclusing Remarks , page 22 , 1st paragraph )
Ben Bernanke
(2006-2009/ Bush II , Obama , and ?)
Who is next …..
    Does it really matter ?
   If we take Cukierman’s conclusion at face
    value : there is only one Casablanca
   Isn’t Money far too important to leave it to the
    discretion of central bankers all of which will be
    victims of the circunstances
   Why not go back to a Bretton Woods II System :
    with Dollar-Gold and /or Euro-Gold Standard
   Wouldn’t it be better that central bankers focus
    exclusively on monitoring and ensuring the
    solvency of the financial system and stay away
    from the money supply

								
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