Two Books on Modern Monetary Policy

Bernanke and Blinder, both former U.S. Federal Reserve officials, have written complementary books on the history of central banking and macroeconomic policy in the United States. In contrast to Bernanke’s 2015 book, The Courage to Act, which was a firsthand account of the global financial crisis during his tenure as chair of the Federal Reserve, his latest book places the evolution of Fed policy in historical context. Bernanke traces U.S. monetary policy from the founding of the Fed in 1913 to the turn of the twenty-first century, when he joined the central bank’s board. He then describes the central bank’s response to the 2008–9 financial crisis, the slow recovery that followed, and the COVID-19 pandemic. He does not neglect to examine policy missteps, including the Fed’s failure to counter the Great Depression in the 1930s and the loss of control over inflation in the 1970s. But Bernanke tells an essentially optimistic story of how central bankers came to appreciate the importance of low and stable inflation, to understand inflation dynamics, and to effectively deploy an expanding array of policy tools. Although the author takes note of the acceleration of inflation in 2021, one wonders whether he would have been equally sanguine about the Fed’s ability to anticipate inflation and so positive about its current policy framework had he not completed his book before the further acceleration of inflation in 2022.

Blinder’s title is a riff on Milton Friedman and Anna Schwartz’s 1963 Monetary History of the United States, which left off where this book picks up. The author emphasizes what Friedman and Schwartz left implicit, namely that monetary and fiscal policies cannot be analyzed in isolation from one another. Blinder describes instances when monetary and fiscal policies were well coordinated but also when they worked at cross-purposes. He eschews simple themes, such as Friedman and Schwartz’s organizing insight that “money is all that matters,” in favor of a complex narrative that stresses the importance of ideas, circumstances, and individuals. He is at his best when describing which policymakers occupied the “first chair,” in the sense of setting the tone for policy overall. He then seeks to explain successive shifts in primacy toward fiscal policy in the 1960s and 1970s, monetary policy when then Fed Chair Paul Volcker sought to suppress inflation in the 1980s, fiscal policy again during the Clinton presidency, and monetary policy in the run-up to the financial crisis of 2008. Straddling the fence between analysis and thick description, Blinder provides just enough detail to satisfy both the specialist and the general reader.