Fed Watching

A trio of book reviews, all about the Federal Reserve.

1. Axilrod, Inside the Fed
Stephen Axilrod is the Ultimate Fed insider, having been on the staff for decades, ultimately becoming the most important member of the permanent staff. He, in other words, knows where all the bodies are buried. So, this could have been an amazing kiss-and-tell memoir, but true to Fed Fashion, it is rather light on scandalous revelations. (Yeah, central bankers are boring, but even still, surely Axilrod knows a few great stories.) The book is organized around the assorted Chairmen for whom Axilrod worked and it does do a nice job conveying the sense of the Chairmens' personalities. Volcker comes off well, Miller comes off as a disaster--but everyone already knew that. The book reads like the reminisces of a retired gentleman, which, oddly enough, is exactly what it is. So, if you care about hearing someone tell tales of monetary policy debates in the the early 1970s, it is a good book. My students were less than thrilled. I liked the book a lot more than they did, which puzzled me at first, but then I realized why. This book has all sorts of details which explained why my old money and banking professor mentioned all the things he did when I took money and banking. Why did I learn about Free Reserves? Now I know--once upon a time, they were the center of a big debate.

2. Wessel, In Fed We Trust
This book was a bit of a disappointment. Wessel is an economics editor at the Wall Street Journal and the book is about the Fed during 2007-2008. So, it could have been amazing. Instead, it stuck pretty close to the narrative one read if one read the Paper during those years. It doesn't seem that Wessel spent much time at all talking to people to get the behind the scenes story--which was really quite disappointing. I did learn a few things, but not nearly as much as I expected to learn. For example, at a minimum it would have been great to learn about the change in Fed policy from Lehman Brothers to AIG--but about why that happened so quickly on that day, we learn absolutely nothing. I suppose this book would be OK for someone who had never read anything about those years, but I can't imagine this is a book anyone will actually be looking at or referring to in 2 years.

3. Ciorciari and Taylor, eds, The Road Ahead for the Fed
This is a useful set of papers mapping out the future of monetary policy and financial regulation. That being said, it is not for the general reader--there is no context for most of the papers, so you actually have to know quite a bit to make sense of the majority of the arguments. On the other side, the book is light on technical details. In short, it is the sort of book designed for students in a class like Money and Banking. It's pretty good in that respect, but I suspect most students will find it a bit dry. The best paper is Hamilton's "Concerns about the Fed's Balance Sheet" which is full of eye-popping graphs (if one is the sort whose eyes pop at seeing Fed balance sheets (which, to be honest, is probably a rather small subset of humanity)).

So, taking all three together, what do we learn? The Fed is a mess. It was a huge mess back in the 1960s, things seemed to be getting better post-Volcker, but the last few years have burst our delusion of Fed competence. Through 2007-2008, the Fed had no idea what it was doing--literally, they did not know what they were doing; they were just trying to do something, anything. And, looking forward, there is no reason to assume they have a plan to get themselves out of the mess they made.

The next few years could be rough.

But, maybe they will get lucky.