Tinker Taylor Scolds or Cries?

When is a book a book? John Taylor's Getting off Track is bound like a book (in hard cover, no less) and sells for the price of a book (a hard-cover, naturally), but the book is really just a long article, with a couple of afterwards thrown in. On the other hand, Taylor's argument is important, and well worth reading for people who want to read this sort of thing.

What sort of thing? Well, the subtitle in true 17th century fashion, says it all:
How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis.

Taylor means that, but it isn't just government in general--mostly it was the Federal Reserve. For those liking details: in the late Greenspan years, the Federal Funds Rate was kept well below the level suggested by the Taylor Rule, causing the housing boom. With no housing boom, no housing bust. With no housing bust, no recession. The recession was prolonged because the Fed thought there was a liquidity crisis when there was none. The recession was worsened because nobody had any idea what the government was doing.

It's a provocative thesis, and I think Taylor really means it and is not overstating his case for dramatic effect. It's clear that Taylor thinks the Fed made some big mistakes; what isn't clear is whether he thinks they were deliberately following bad policies or simply the victims of ignorance about the real state of things.

In the end, it's not entirely convincing. On the one hand, I think what Taylor identifies is probably entirely correct. On the other hand, though, I think there was more to the crisis than this. At a minimum, I think it is hard to dismiss other things which were contributing causes, e.g., the mortgage loan structure post-savings and loan meltdown, Fannie Mae and Freddy Mac and the Community Reinvestment Act (the impulse behind it, if not the Act itself), the tremendous leverage ratios at the investment banks, moral hazard resulting from the Long-Term Capital Management episode. Sorting out which of these things are primary and which are secondary will take some time.

Oddly, Taylor's book is both good and hard to recommend--if this is the sort of book you will enjoy, you've probably already read it or have it on your bookshelf waiting to be read.