Peter Conti-Brown, my coauthor on a paper-in-the-works on negative interest rate law, has appeared on supplysideliberal.com many times:
- Peter Conti-Brown on Walter Bagehot
- Peter Conti-Brown on Marriner Eccles and the Refounding of the Fed
- On Making the Fed’s Governance Constitutional
- How to Keep a Zero Interest Rate on Reserves from Creating a Zero Lower Bound
- Ulysses, the Sirens and the Punch-Bowl
- Peter Conti-Brown on the Decentralized Fed, Circa 1934
- Peter Conti-Brown on the Complexity of the Idea of “Independence” of a Central Bank
- Peter Conti-Brown on Law
- Peter Conti-Brown: More Checks and Balances Are Needed for the Fed's General Counsel
I am grateful for Peter's permission to post here his review Danielle DiMartino Booth's book Fed Up, which, like the last post above, "More Checks and Balances Are Needed for the Fed's General Counsel," also appeared in the Wall Street Journal.
Peter wrote his own preamble to his review--a preamble that is not in the Wall Street Journal. It is Peter's words from here on:
Over the last two weeks, I published two pieces in the Wall Street Journal. In the first, I argued that the technical work of the Fed's general counsel actually reflects a great deal more policy making than many have assumed. We should think harder about how that work retains its democratic legitimacy, including whether we should subject the Fed's lawyer to the appointments process (as is done with some other agencies).
But in the second (copied below), I reviewed a new book that seems to be broadly sympathetic to this idea. The book, Danielle DiMartino Booth's Fed Up, is a polemic against the very idea of technocratic expertise. She would fire most of the Fed's economists and require more of its staff and leadership to have business experience, rather than just central banking or policy experience (although, to be clear, she is not always consistent in this position: she frequently mistakenly refers to Fed economists as "academics" when most are not, and she can't decide whether Wall Street experience is a good thing or a bad thing). As you will see below, I didn't like the book and think its implications for central bank policy are very dangerous.
What gives? How can I be both in favor of greater inexpert participation in selecting the Fed's general counsel but not in favor of Booth's inexpert manifesto?
The answer is in favor of a radical center that is under increasing attack in this age of certainty. In critiquing Booth's book, I'm not arguing that Fed economists are perfect, nor that there is no ideological content to their analyses, nor that homogeneity in our intellectual culture--wherever it exists--is a good thing. In my book, The Power and Independence of the Federal Reserve, I argue firmly against each of these propositions.
The argument, instead, is that one can be both expert and ideological, and that we should recognize, promote, and seek to understand these twin features of central banking. Ideology and expertise are both why Fed governance matters so much. When we have public debates about who should fill the two (soon-to-be three) vacancies on the Fed's Board of Governors, those debates should center on both aspects: we want central bankers who will know what they are doing and not simply parrot back what they heard on CNBC that morning. But we will also want to recognize that a central banker's world view will matter enormously for how she will resolve questions under conditions of uncertainty. Those questions, after all, are by far the most important ones a central banker is tasked to answer.
In other words, those who insist that central banking is done in a world free of ideology or values—that it's expertise all the way down—are wrong. But those like Ms Booth who think there is no such thing as expertise in monetary policy are also wrong. We should resist both impulses.
The Federal Reserve influences the economy with unrivaled power, but when the public puzzles over its operations, the focus is at the top: Janet Yellen today, Ben Bernanke and Alan Greenspan before, and, still earlier, Paul Volcker, the pioneer target of this obsession. Danielle DiMartino Booth’s memoir, “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America,” aims to pull those wonky Fed leaders off of their remote thrones and educate readers on what the true nature of Fed power is—and what it should be. She argues that the Fed is overly dominated by stodgy economists and needs, along with more staff members with business experience, an infusion of charismatic figures who can relate to the public and resist getting lost in the naïve hopes of technocratic expertise.
Ms. DiMartino Booth was an adviser to Richard Fisher, who was the president of the Federal Reserve Bank of Dallas between 2005 and 2015, and her strong views often come sheathed in sarcastic anger. In Ms. DiMartino Booth’s ideal world, wits trump expertise, anecdotes defeat data and the school of hard knocks will always triumph over Ivy League “brainiacs.” Ms. DiMartino Booth’s two master’s degrees, one in business and the other in journalism, were never enough to satisfy her economist colleagues. “As far as [Fed economists] were concerned,” she writes, “I had nothing interesting or valuable to say.” Later she writes: “I didn’t qualify to breathe their air.” She repeats variations on this theme dozens of times.
Against this tide of condescension stands Mr. Fisher, her boss and the book’s main figure. Ms. DiMartino Booth is the Sancho Panza to Mr. Fisher’s Don Quixote. Mr. Fisher, the author writes, “gave new meaning to the word charismatic—old-school manners; impeccably dressed in an expensive suit and French cuffs, with cufflinks shaped like dollar signs.” The book is a paean to his ability to stand up to the Fed’s “MIT Mafia.”
If Mr. Fisher is the hero, Ms. Yellen is the villain. Part of this critique is substantive, if familiar. Like her boss, Ms. DiMartino Booth is a monetary hawk who cannot abide by a central bank that does anything but fight inflation. Indeed, as the book’s subtitle suggests, she barely likes the idea of the Federal Reserve at all. Ms. Yellen does not share such views, and the accommodative monetary policies that she supported over Mr. Fisher’s dissents, such as dropping interest rates to zero at the height of the 2008 crisis or the Fed’s quantitative easing programs, are the Fed’s great failure in this Greek tragedy.
But Ms. DiMartino Booth’s Janet Yellen is much more than wrong: She is a “preening dove” whose “drumbeat for more stimulus” in 2010-13 as vice chair of the Fed was an effort to curry favor with President Barack Obama so that she could gain her long-desired prize of the big chair. Once in that office, she maintained Mr. Bernanke’s “radical policies with gusto.” Ms. Yellen is also presented as a fuzzy echo of her husband, the Nobel Prize-winning economist George Akerlof, whose “strident Keynesian” ideas are invoked as evidence of what Ms. Yellen must surely believe, even though “Yellen rarely says anything dramatic in her public speeches, unlike her husband.” Finally, in a description that sounds more like a game played over beer pong at a frat party, Ms. DiMartino Booth declares that on a charisma scale of 1 to 10 “Yellen barely registered at 0.7. (For comparison, Fisher would score a 9, former President Bill Clinton an off-the-chart 11.)”
Where to start? This account of Ms. Yellen’s careerism is wrong: She was notably reserved, even silent, during the 2013 debate over who should succeed Mr. Bernanke. And while she certainly supported the Bernanke Fed’s expansionary policies, there has been no quantitative easing, no lowering of interest rates during her tenure (indeed, the very opposite). There are ways to criticize the Yellen Fed that are rigorous, but these jabs are something else entirely.
By book’s end, Ms. DiMartino Booth concludes that “the Federal Reserve’s radical monetary policy—imposed by academics with no experience in the business world—has proved a disaster on an unprecedented scale.” That may or may not be true. But for readers not predisposed to these conclusions, there is little in “Fed Up” that will persuade them: The book is full of dramatic assertions but mostly cursory evidence and no convincing analysis.
Perhaps the most remarkable theme is a cri de coeur for making monetary policy based not on sober economic analysis but on cable television. What begins as an aside claiming that the early-morning market-watching show “Squawk Box” is must-see TV becomes a consuming need for Ms. DiMartino Booth to be close to CNBC during nearly all of the memoir’s critical junctures. For example, one of the worst accusations she makes against Fed economists is that “none of them watched CNBC in the morning.” Where CNBC enters the narrative, the reader can expect to see Ms. DiMartino Booth portraying herself as a commentator who understands how things work in the real world, as opposed to those Ph.D.s who probably couldn’t pick Jim Cramer out of a lineup.
What Ms. DiMartino Booth ultimately proposes isn’t a different vision of evidence-based policy but central banking based on ideological imperatives and gut instincts. Even if Ms. DiMartino Booth’s conclusions are congenial to one’s worldview, the frame she introduces is dangerous. If the Fed becomes the exclusive battleground for the superiority of my gut instincts over yours, we will reduce monetary policy to the whims of the political crowd. There is likely a coming confrontation between the president’s inflationary fiscal policy and a central bank charged with defending the currency. In that event, the result of throwing the experts out, as Ms. DiMartino Booth proposes, will be the opposite of her intent.