Economist John Taylor offers mini-reviews of two of the best economics books I’ve read this year. Of Boom and Bust Banking: The Cause and Cures of the Great Recession, Taylor writes:
I enjoyed reading this book, perhaps because I agree so much with the general themes and conclusion that U.S. monetary policy—by creating a boom and a bust—led to the financial crisis and the great recession. But, as I said in my back cover review of the book, David Beckworth and the other authors—including Lawrence H. White, Diego Espinoza, Christopher Crowe, Scott Sumner, Jeffrey Rogers Hummel, William Woolsey, Nick Rowe, Josh Hendrickson, Bill White, Larry Kotlikoff, and George Seglin—go much further. For example, the chapter by David Beckworth and Christopher Crowe puts forth their original theory of the Fed’s “monetary superpower” status and the resulting unfortunate international repercussions of these boom-bust monetary policies. Scott Sumner writes on why nominal GDP targeting would work better than recent and current policy, and Larry Kotlikoff explains how his narrow banking proposals would help to prevent future crises. More generally the authors of this book show why economic policy got off track, why alternative explanations of the boom—such as a global-saving glut—are flawed, and why monetary policymakers must return to rules-based policies in the future.
And Taylor on The Great Recession: Market Failure or Policy Failure? by Robert Hetzel:
Hetzel makes a compelling case that policy failure was the main cause of the recent financial crisis, and more generally that that “monetary disorder” rather than a “market disorder” is the cause of poor macroeconomic performance over many years. At the same time, he acknowledges and discusses disagreements among those who argue for rules rather than discretion. For more details see my review of this book from Economics One.
Both books argue that a) the Fed’s monetary miscues caused the Great Recession and Financial Crisis, and b) the Fed should adopt a nominal GDP target. And both books have also been extraordinary in influencing my thinking on monetary policy and reforming the Fed.