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

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THE ANGUISH OF CENTRAL BANKINGANOTHER LOOK
AT THE GREAT US INFLATION AND ITS AFTERMATH
by Alex Cukierman

• Comments by Ricardo V. Lago

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Arthur F. Burns (1970 -1978 / Nixon , Ford ,
Carter )

• RECESSION AVOIDANCE PREFERENCE

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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

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G. William Miller (1978 -1979 / Carter )

• RECESSION AVOIDANCE PREFERENCE

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William McChesney Martin (1951 -1970 / Truman
,Eisenhower , Kennedy , Johnson , Nixon )

• INFLATION AVERSION PREFERENCE

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William Martin The Thomas Becket Syndrome
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Martins most famous quote

• The job of the Federal Reserve is
• "to take away the punch bowl just as the party
  gets going,

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Paul Volcker (1979 -1987 / Carter , Reagan )

• INFLATION AVERSION PREFERENCE

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Alan Greenspan(1987-2006 / Reagan , Bush I ,
Clinton , Bush II )

• RECESSION AVOIDANCE PREFERENCE

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• During the 1950s, Greenspan was one of the
  members of Ayn Rand's inner circle, who read
  Atlas Shrugged while it was being written

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Greenspans 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 Rands Atlas Shrugged word . Rational
  Self-interest is the best form of natural and
  spontaneous regulation

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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 Rands Atlas Shrugged

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This is a very controversial claim to say the
least

• Greenspans 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)

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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

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Cukiermans 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 )

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Ben Bernanke (2006-2009/ Bush II , Obama , and
?)
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Who is next ..
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Does it really matter ?

• If we take Cukiermans conclusion at face
  value there is only one Casablanca
• Isnt 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
• Wouldnt 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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