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

1. THE ANGUISH OF CENTRAL BANKING:ANOTHER LOOK AT THE GREAT US INFLATION AND ITS AFTERMATHby Alex Cukierman Comments by Ricardo V. Lago

4. Arthur F. Burns (1970 -1978 / Nixon , Ford , Carter ) “RECESSION AVOIDANCE PREFERENCE”

5. 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”

6. G. William Miller (1978 -1979 / Carter ) “RECESSION AVOIDANCE PREFERENCE”

8. William McChesney Martin(1951 -1970 / Truman ,Eisenhower , Kennedy , Johnson , Nixon ) “INFLATION AVERSION PREFERENCE”

9. William Martin : “The Thomas Becket Syndrome “

10. Martin’s most famous quote The job of the Federal Reserve is "to take away the punch bowl just as the party gets going,“

11. Paul Volcker (1979 -1987 / Carter , Reagan ) “INFLATION AVERSION PREFERENCE”

12. Alan Greenspan(1987-2006 / Reagan , Bush I , Clinton , Bush II ) “RECESSION AVOIDANCE PREFERENCE”

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

14. Greenspan’s 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 Rand’s “Atlas Shrugged” word . “Rational Self-interest” is the best form of natural and spontaneous regulation

15. 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 Rand’s “Atlas Shrugged”

17. This is a very controversial claim : to say the least • “Greenspan’s 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)

18. 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

19. Cukierman’s 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 )

20. Ben Bernanke (2006-2009/ Bush II , Obama , and ?)

21. Who is next …..

22. Does it really matter ? • If we take Cukierman’s conclusion at face value : there is only one Casablanca • Isn’t 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 • Wouldn’t 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