Neil Irwin (1)

Buyer Beware: Bernanke and his Eurobanker friends could not have commissioned a book that was more friendly and sunny in its disposition towards the institution of central banking.

And besides Neil Irwin's incredible reluctance to criticize central banking's response to the 2008 crisis, Irwin displays a profound ignorance of some of the more systemic issues which plague The West.

Decades of American trade-deficits and the destruction of American manufacturing are never mentioned. He refers to the entire blundering chairmanship of Alan Greenspan as "The Great Prosperity", while ignoring perpetually falling wages contrasted with historic growth of national/corporate/consumer debt (and barely mentions 'Greenspan's bubbles'). He scoffs at the idea of gold as money and in the same sentence literally refers to the Fed's money printing as "the Real Money"...

To be fair, the book provided a decent journalistic, narrative account of the financial crisis. But overall, Irwin dons central banking-tinted Ray Ban's through all 400 pages, and never takes them off.

In the last sentence of the book, Irwin literally insinuates that the salvation of civilization itself must be trusted to the sacred practice of central banking...

Who knows: maybe the central bankers DID commission a book...… (meer)

This is the history of the Great Recession as told through the eyes of its central bankers, which is a particular angle I hadn't seen before. Inevitably, it will disappoint in certain ways: in much the same way that The Best and the Brightest, David Halberstam's magisterial account of the political factors that drove the decisions to escalate the Vietnam War, was not intended to be a military strategy guide, this work of journalism is not intended to be an economic policy primer. For that, you need something like Paul Krugman's The Return of Depression Economics or a Dean Baker work like Getting Back to Full Employment. However, if you're curious about who ran the world's central banks during the early stages of the crisis and why they made the decisions they did, then this book has much to recommend it, even if it will make you angry.

First things first: Irwin didn't get to talk to Bernanke, King, or Trichet, he relied on the usual "close and confidential sources", so we get coverage that's an extended version of the stuff he writes at his day job as an economics reporter for the Washington Post. That's fine with me - I like his work there and find it valuable reading, and I would hardly expect the Fed chair to start spilling insider gossip. The interest for me in this book is in reading the structural factors behind the policy response to the 2007 financial crisis and its increasingly unbelievably long aftermath, because while each central bank was set up seemingly similarly, with unelected, nearly unaccountable "technocrats" in theory free to direct their respective economies without political interference from the rabble, each were constrained in consequential ways. I'm reminded once again, as I am every time I read anything trying to justify why central banks are so insulated from the outside world, of Isaac Asimov's Foundation series, and how the central banker-ish Second Foundation could do their jobs of steering the fate of the galaxy properly only if no one knew they existed or what they were doing. That didn't turn out so well in the series and hasn't turned out so well lately in the real world.

Quite frankly, what he reveals is depressing, although not too surprising. An entire human lifespan after the Great Depression, large numbers of policymakers have never bothered to read anything Keynes (or even Friedman, it seems) wrote about it, and so as banks were failing and credit drying up across the planet, each of the three leaders had to contend with coworkers and politicians determined to replicate their grandfathers' mistakes. The behavior of the inflation-obsessed German contingent in the European Central Bank, for example, inescapably brings to mind that Talleyrand quote about the Bourbon Dynasty that they "had learned nothing and forgotten nothing", constantly conjuring specters of the Weimar inflation while never referring to the Depression deflation that actually brought fascism to power. Likewise, the "inflation hawk" faction of Federal Reserve Governors reminds me of Republican Party operatives (both present-day and in the 1930s, come to think of it), almost ghoulishly eager to, in the hapless Hooverist words of former Treasury Secretary Andrew Mellon, "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." In the UK, Mervyn King himself comes off terribly with his contentious management style and almost open campaigning for the Conservative Party before their 2010 elections.

Irwin's profiles reveal a surprisingly confused central banking system, confused enough to make one rethink the extraordinary amount of deference and latitude they're currently provided. The ECB, for example, keeps transcripts of its decision-making secret for an astonishing 30 years! If voters could see how confused, contradictory, dilatory, and just plain inept their planning sessions were, perhaps the incredible spectacle of them openly or covertly toppling one elected government after another would be revealed for the travesty that it is. These guys constantly mention how dedicated they are to preserving the dividing line between the "pure" monetary policy of bond purchases or liquidity provision and the "political" fiscal policy of taxation and spending practices, yet by the end of the book in mid-2013, the only leader left standing from before the crisis is Angela Merkel, whose German constituents have coincidentally been about the only ones well-served by the ECB's painfully tight monetary policies. These bankers are not really technocrats at all; that moralizing language that Mellon was using back in the 30s gets tossed around all the time towards "irresponsible" nations like Ireland or Portugal, whose helpless governments collapse and whose young people get condemned to a generation of diminished life expectations because some unelected banker who never met an interest rate hike he didn't like refuses to allow even the possibility of an economic recovery.

One interesting detail is that the Federal Reserve often tends to present its policy choices internally in threes: a "hawkish" policy that aggressively targets inflation; a "dovish" policy that focuses more on unemployment; and a "Goldilocks" policy that effectively splits the difference. This is the Overton window at work, and it says a lot that even a guy like Bernanke, who supposedly spent a great deal of his academic time studying the Great Depression and Lost Decade-era Japan (whose unfortunate central banker Masaru Hayami gets a brief section of woe), only managed to do what at best can be described as an "adequate" job with respect to inflation and a downright awful job with respect to unemployment. Part of that isn't necessarily his fault - like I said, his cohorts are often clueless, and the gold standard fetishists/budget arsonists in the Republican Party are simply malignant - but it makes one question the wisdom of trying to cleanly separate monetary policy from social feedback. I'm not saying I have a better idea for how to run the global macroeconomy, but I would love to see some sort of accountability for the members of these central banks whose supposedly nonpartisan, technocratic expertise put us in such a mess. The later section on People's Bank of China head Zhou Xiaochuan and his relative lack of autonomy doesn't necessarily sound so bad, but you've got to be careful about importing any part of China's governance model. Maybe you could head off problems in the candidate stage and force every prospective central banker to play a Great Depression simulator game (SimFed?), with anyone who starts talking about hyperinflation getting instantly DQed? As Irwin ably shows, macroeconomics is still depressingly full of "zombie ideas", in John Quiggin's phrase, which I guess is why this book isn't entitled "The Scientists". Prepare to be alternately informed and outraged.… (meer)