Edited by Dimitri B. Papadimitriou and L. Randall Wray
Robert J. Barbera and Charles L. Weise Introduction US monetary policy from 1979 through 2000 delivered the world an important victory. The Paul Volcker/Alan Greenspan eras broke the back of the wage-price inflation dynamic that crippled the global economy in the 1970s. That victory was, however, misunderstood by mainstream economists. The defeat of the Great Inflation led to proclamation that the US had achieved a Great Moderation. Trade cycle worries, the story went, had been substantially reduced. Intelligent policymakers, corporate heads and investors would do best if they focused on long term issues. Boom and bust cycles remained, but their amplitudes were small and their likely appearance rare – so stick to the long term and you were likely to be on the right road. Excitement about the Great Moderation elevated the status of the Federal Reserve Board. At the White House conference on the new economy, held on 4 April 2000, Alan Greenspan sat alongside President Clinton. In the eyes of most conference participants Alan Greenspan, not President Clinton, was the celebrity – the Maestro, as Bob Woodward called him. Times change. As the first decade of the new millennium winds down, Ben Bernanke, the new Fed Chairman, is under intense scrutiny. The Chairman and his colleagues from mid-2007 through fall-2008 have confronted clear evidence of substantial US economic retrenchment laid alongside building inflationary pressures. Most commentators acknowledge that 2008 will likely be labeled a recession once official arbiters have a complete picture of the year’s economic performance. The crisis has...
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