Book Review: “The Times: How the Newspaper of Record Survived Scandal, Scorn, and the Transformation of Journalism” by Adam Nagourney

 I have read that many journalists were inspired in part to join the profession after reading Gay Talese’s, The Kingdom and the Power, a book published in 1969 about the New York Times, and the Watergate book, All the President’s Men by Carl Bernstein and Bob Woodward. No young person, though, will read Adam Nagourney’s book, The Times, and come away convinced that The New York Times has been a great place to work, whatever they may think about journalism as a career. 

The book dwells on the challenges and the missteps of The New York Times from 1977 to 2016. During this period, there was the challenge to newspapers’ business model relying on advertising by the rise of the internet, and The New York Times committed serious journalistic errors, such as publishing Judith Miller’s articles on Iraq and Jayson Blair’s made-up stories, among others, which damaged the paper’s reputation. 

The story Nagourney tells, though, has a happy ending. While the paper was slow to embrace the internet, it finally bowed to the inevitable and has regained its financial footing. It did not have to do this the way The Washington Post found its financial salvation by selling itself to a billionaire savior, Jeff Bezos. The New York Times has in recent years become more a digital news outlet, with more of its revenue coming from digital rather than print subscriptions. However, missing in Nagourney’s telling is the role of Carlos Slim, a Mexican billionaire, who is barely mentioned. Mr. Slim provided loans and investments which enabled the New York Times to survive difficult financial times. 

The book’s focus is on how the two publishers and seven executive editors during the period covered coped with the challenges. Other employees of the paper appear when they become important to the top people. There is much detail concerning personal rivalries, maneuvers to get promoted, management style, and so on. It makes for an interesting and long story. 

Nagourney, himself, a longtime political journalist who eventually gave up his mostly national politics focused beat when he moved to Los Angeles, nowhere appears in the book. For a while, he was the Los Angeles bureau chief and then a cultural correspondent and now is back to covering national politics, though still based in Los Angeles. For some of us, it had been a bit of a mystery of what he had been up to, but now we know. He was writing this heavily researched and detailed book. 

As a longtime reader of The New York Times, I wish there had been more discussion of its editorial and op-ed pages. For example, while William Safire’s controversial hiring in 1973 took place before this book begins, there might have been some mention of his success at being a mostly conservative columnist who also wrote a brilliant column on language for the paper’s Sunday magazine supplement. (Safire had been a speech writer for Vice President Spiro Agnew and was famous for phrases heavy in alliteration, such as “nattering nabobs of negativism.”) The New York Times has not been as successful in hiring other interesting conservatives as columnists. The book’s discussion of columnists is mostly about their being consulted by others.

In addition, missing is much discussion of how the reporters were impacted by this tumultuous period, except in broad generalities. Also, there is no discussion of the work life at foreign bureaus or U.S. regional bureaus, with the exception of Washington, DC. The tensions between the home office in New York and the Washington, DC bureau does play a significant role in the narrative. 

Nevertheless, this book, while both long and limited in focus, is interesting, especially for devoted readers of The New York Times.  For all its troubles and missteps, the Times is undoubtedly the most important English language newspaper in the world, and its influence is broader than its readership, because it plays a significant role in setting the news agenda for other news outlets in the United States, including for television and cable news. 

It is reassuring that the story Nagourney tells has a mostly happy ending. That was not inevitable; the paper could have disappeared in a bankruptcy proceeding. It is also reassuring that the Washington Post, with a significant assist from Jeff Bezos, is providing serious competition. This makes both papers better. In addition, The Wall Street Journal does provide some competition in its news pages. I wish that other papers, such as the Los Angeles Times, would provide more competition at the national level. 

To an extent, the British newspaper, The Guardian, provides web competition for U.S. papers, especially because it provides significant coverage of U.S. news. During the buildup to the U.S. invasion of Iraq, I thought The Guardian’s coverage was more reliable than that of U.S. papers, including the Times. It turns out I was right. 

Nagourney ends his book on an optimistic note concerning how The New York Times has reinvented itself and continues to provide much needed journalism. I agree with that and can recommend his book to those interested in journalism in general or The New York Times in particular. The book is well-written and, for all its length, never boring.

Additional Comments on Cryptocurrencies

As I indicated in my review of Ben McKenzie’s book on cryptocurrency, my interest and knowledge of this subject is limited. Given this, here are some additional comments.

One place to get an analytical, though dated, view of cryptocurrencies is Gary Gensler’s 2018 MIT course on the subject. It is free, but you do have to spend the time to watch it and do the readings. (I have not done this.) The crypto enthusiasts were initially pleased by Gary Gensler being appointed to head the SEC, but the crypto press is now harshly critical of him because of SEC enforcement actions.

From what I gather, Gensler now thinks most cryptocurrencies are securities except for bitcoin. He does seem though impressed with blockchain technology, which could be used for other purposes than transferring crypto. However, that is uncertain.

The regulatory dilemma with crypto is that setting up a formal regulatory regime provides legitimacy for crypto. To me, trading in bitcoin and similar “coins” looks like gambling with no benefit for society. In effect you are betting that someone in the future will be willing to pay you more than you paid for your cryptocurrency. In the meantime, it is up to the courts to decide what role the SEC and the CFTC can play in this space. Congress can of course decide to pass legislation on the subject, but that will probably take some time.

Some people putting actual money into crypto may be betting that crypto will become like dollars and euros and become embedded in our financial system, but it is hard to see that happening. It does not inspire trust; it does not have a central bank and a banking system to create it; and it is not embedded in the economy and the legal system as money. Perhaps, bitcoin can be a little like gold as a place to park money and, if there continues to be enough people who believe in it, maintain some fluctuating value, but that is uncertain. That could happen, though, with a few cryptocurrencies playing a small role in financial markets.

Finally, some major players are getting into the crypto game. For example, Fidelity Investments offers a trading platform for bitcoin and ethereum. I think this is a mistake, but, to its credit, Fidelity says that accounts in its crypto affiliate do not have the regulatory protections that its normal brokerage accounts benefit from. Other firms, such as Blackrock, want to offer ETFs in crypto. The SEC has not yet approved this, but it may.

Book Review: Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by Ben McKenzie with Jacob Silverman

I usually do not pay much attention to cryptocurrencies except when they make a good deal of news. Call me a crypto skeptic: I have never understood the attraction. To begin with, what purpose do they serve?

One of the touted purposes is to eliminate the need for financial intermediaries and all the concomitant regulation. However, holding cryptocurrency without the assistance of some kind of intermediary is more than most people have the time or technical savvy to do. Moreover, the lack of regulation for trading platforms that are unregulated has given rise to investors and traders (probably a better term is “gamblers”) losing money due to scams.

It is hard to determine what crypto really is. Is bitcoin an asset, even if there is nothing underlying it but clever computer code and a network of computers? Stablecoins, by contrast, sometimes do have some underlying assets other than other cryptocurrencies and some sponsoring group or entity, but it is difficult to determine how trustworthy the backing is. We can say, though, that one thing crypto is not, and that is money. As taught in introductory economic classes, money serves three functions: a store of value, a medium of exchange, and a unit of account. Crypto does none of these things. While El Salvador has made bitcoin legal tender in that country; this experiment does not seem to have gone well.

Ben McKenzie, a TV actor in shows I have not watched, decided during the shutdown of television production during the pandemic to research and write a book on cryptocurrency. He had the same skepticism I do about crypto. However, while my inclination is generally not to think about it too much unless someone asks what I think, McKenzie was much more curious and decided to research and write a book about it. For assistance he recruited a journalist from his Brooklyn neighborhood, Jacob Silverman. The book, though, is written in the first person, with the narrator being McKenzie.

I decided to purchase and read this book after I heard McKenzie speak about his book on the public radio program Marketplace. I thought what he had to say was interesting.

The most interesting and readable portions of the book are the descriptions of the various encounters the authors had with various denizens of the crypto world. The interviews with Sam Bankman-Friedman, with whom they talked before and after his financial empire collapsed and indicted for fraud. It amounts to a fascinating portrayal of a very strange man.

Another episode is an encounter at the 2022 South by Southwest conference in Austin, Texas. This story seems a bit off. Two men, claiming they are CIA agents, take McKenzie and Silverman to dinner and, according to the book, attempt to recruit them as informants on crypto. The description of this makes the recruitment seem extremely amateurish. It also leaves questions. What is the CIA doing operating domestically? Doesn’t the CIA have better ways of learning about crypto than talking to a TV actor and journalist who are just beginning their research on the topic and are not players in this market? What was really going on here? If these guys are not with the CIA, who are they and what do they want? These and similar questions are not answered, probably because the authors do not know what to think about what happened. In any case, they got a nice dinner, and the two supposed CIA agents do not reappear in the book.

The weakest parts of the book are the description of both the 2008 financial crisis and the 2022 debacles in crypto. They seem to have been written quickly, there are some typos, and in one place there appear to be some missing words. This book does not provide a clear account of market developments or exactly how people were taken advantage of. There are probably better accounts of the skullduggery that took place elsewhere.

In other words, read this book for a description of the crypto world and an argument for why one should resist any feeling of “FOMO” (fear of missing out). If you are more interested in the technicalities of crypto than I am, you will probably want to go elsewhere.

Book Review: The Postcard by Anne Berest, translated from the French by Tina Kover

 About a month ago when I was in San Francisco, I found out about a book talk by Anne Berest at Green Apple Books on the Park. The woman who told me about this raved about the book, and given the subject matter, Jews in Europe during the Nazi period in Germany, I decided to attend and was impressed enough by the author that I ended up buying the book.

The Postcard is a novel based on the true story of Anne Berest’s search for the sender of a postcard to her mother’s house on which was written the name of four relatives who had been murdered at Auschwitz. She does eventually discover the origins of the postcard, which is a bit, but only a bit, of a surprise. In truth, the postcard in question is what Alfred Hitchcock called a MacGuffin, a device to keep the plot moving but not in itself terribly important. The real subject matter is a case study of the history of Berest’s family during the Nazi era, in France and other countries in Europe and Palestine, and what it means to be Jewish, even if one has not been brought up in the religion.

Once the story gets going it is fascinating. Much of it is based on the research Anne Berest’s mother had done until the book gets into the subsequent search for information about the postcard. Amusingly enough, at the book talk I attended, Berest said her mother had insisted that the “bad” words in the quotations attributed to her be removed because that is not how she speaks. The author said this was a “lie,” because her mother uses a lot of bad words; nevertheless, in deference to her mother, she cleaned up the language for the novel.

The book has been a bestseller in France, and it has recently been translated into English. It will likely not do as well here, partly because World War II and its accompanying horrors are not felt to be as much a part of U.S. history as it is for France. One of the issues Berest addresses in this novel is current and past antisemitism in France. In her talk in San Francisco, Berest said that France is a complicated country, and this novel shows that some of the French used the German occupation to go after the Jews, while others did what they could to protect them.

Writing the book was a way for Berest to consider her own Jewish background. Berest, who was not brought up religiously, recounts a Seder she went to with her boyfriend where her knowledge of this ceremony is revealed to be paltry compared with her knowledge of the works of leftist intellectuals. This event and the subsequent research into her family’s history forced her to reflect on what it means to her to be Jewish and to reject the criticism of another person at the Seder who questioned her Jewishness.

In her book talk, Berest reflected on the current world situation briefly. She remarked that “the signals” are not good. (Her English is fine but not completely fluent.) I think she had in mind growing antisemitic incidents and the growth of right-wing authoritarian tendencies both in the U.S. and Europe. In her book, some take the threat posed by the Nazis more seriously than others. Not only does she want to remember her relatives who had perished but also to be alert to the warnings of history.

A Few Debt Limit Observations

Treasury Secretary Janet Yellen was very careful in how she responded to questions from George Stephanopoulos on Sunday about any contingency plans the Administration might have if Congress does not increase the debt limit before the Treasury runs out of cash. She said that there were no good options and that she did “not want to consider emergency options.”

The news media, though, has been highlighting the use of the 14^th Amendment to the Constitution to allow the Treasury to continue issuing Treasury securities. In that Amendment which was put into the Constitution in the aftermath of the Civil War, there is the following sentence: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” There is some ambiguity here, and the phrase “authorized by law” might be cited by those who do not believe that the 14^th Amendment provides a way to avert an economic disaster.

Laurence Tribe, a noted Constitutional expert, used to believe that the 14^th Amendment was not a way for the Treasury to ignore the debt limit, but in a recent article in the New York Times, he explains why he has changed his mind.

“The question isn’t whether the president can tear up the debt limit statute to ensure that the Treasury Department can continue paying bills submitted by veterans’ hospitals or military contractors or even pension funds that purchased government bonds.

“The question isn’t whether the president can in effect become a one-person Supreme Court, striking down laws passed by Congress.

“The right question is whether Congress — after passing the spending bills that created these debts in the first place — can invoke an arbitrary dollar limit to force the president and his administration to do its bidding.

“There is only one right answer to that question, and it is no.

“And there is only one person with the power to give Congress that answer: the president of the United States. As a practical matter, what that means is this: Mr. Biden must tell Congress in no uncertain terms — and as soon as possible, before it’s too late to avert a financial crisis — that the United States will pay all its bills as they come due, even if the Treasury Department must borrow more than Congress has said it can.”

There has been speculation about the litigation that might follow if the Administration were to invoke the 14^th Amendment. I wonder about that. First, I am not sure who would have standing to sue. I am not sure if the Supreme Court would say that Speaker McCarthy by himself has standing, and I am not sure if he got a vote on the House floor to litigate what the courts would do. In any case, given the financial market turmoil that would likely occur, I doubt that politicians would think that it would be in their benefit to try to call into question debt the Treasury issued above the debt limit.

Also, there are practical difficulties in considering that some of the public debt is invalid. For example, Treasury issues 3-month and 6-month bills every week. The 3-month bills, once issued, are indistinguishable from the 6-month bills already issued which mature on the same date (technically, the bills maturing on the same date have the same CUSIP number). There would be no way to determine which of these bills when issued breached the debt limit if Treasury issued an amount more than what it needed to pay off the maturing bills.

I think the House would try to get at President Biden some other way, perhaps even including commencing impeachment hearings. There is of course no way that there would be enough votes in the Senate to remove him from office even if there were enough votes to impeach him in the House.

There are of course other alternatives to using the 14^th Amendment which have been publicly discussed. We can all of course keep speculating what the Administration would do if the Treasury runs out of cash; all the options, including default, look bad. We don’t know, though, and we can all hope that we don’t find out.

What makes the possibility of the debt limit not being increased in time more worrisome than in past episodes is the weakness of the Speaker. In order to pass a debt limit with whatever other language is acceptable to 60 Senators and which the Administration can grudgingly accept, Speaker McCarthy will likely need some votes from House Democrats to offset the loss of votes from some House Republicans. Given that it only takes one member to call for a vote “to vacate the chair,” McCarthy could well lose his position if he chooses to put the debt limit legislation for a vote on the floor.

Of course, in October there could be a government shutdown due to a failure to pass appropriation bills. We’ll get to see how that works out after the debt limit issue is resolved one way or another.

Book Review: “Empire of Pain: the Secret History of the Sackler Dynasty” by Patrick Radden Keefe

 I came to read Empire of Pain not because of any strong interest in learning about the family and the pharmaceutical company which profited greatly and met their downfall from marketing a version of oxycodone, OxyContin, but because of my appreciation of the author. I had read another book by Patrick Radden Keefe, Say Nothing: A True Story of Murder and Memory in Northern Ireland, which I greatly liked and came to the conclusion that any book Mr. Keefe writes is probably worth reading. Both Empire of Pain and Say Nothing are nonfiction but read like novels. Keefe does a prodigious amount of research and then tells a captivating story. In addition to be entertained by the narratives, both books impart a great deal of information in a painless way. In reading Say Nothing, the reader will learn a great deal about sectarian conflict in Northern Ireland, and in reading Empire of Pain, the reader may come away somewhat horrified by pharmaceutical industry marketing practices and political influence.  

Empire of Pain recounts a multi-generational history of the Sacklers. The first part of the book devotes considerable attention to Arthur Sackler, who personally had nothing to do with OxyContin, having died before Purdue Pharma started selling the drug. In fact, his direct descendants did not profit from OxyContin either, since they did not have an ownership interest in the company when it was selling OxyContin. It was Arthur’s two younger brothers and their children and descendants who reaped the benefit.

Keefe’s rationale for focusing on Arthur until his death is that he pioneered the marketing techniques that later were used to sell OxyContin.  Roche had developed two minor tranquilizers to compete with Miltown (derisively referred to as “mother’s little helper”), Librium and Valium. These tranquilizers, especially Valium, became widely prescribed starting in the 1960s, but they can be abused and can lead to dependency or addiction. Of course, they are not as dangerous as opioids.

Arthur Sackler became rich from his company helping Roche to market Valium and then used some of his wealth for philanthropic purposes, especially for art museums. The tale of his business practices, including convincing doctors to prescribe Valium, interactions with the U.S. Food and Drug Administration, and secretly having part ownership of his principal competitor are fascinating to read.

The rest of the book is mainly about OxyContin, which when used as directed, provides time-released oxycondone to relieve pain. It was the main drug that Purdue sold, and the company did nothing to monitor its use, such as certain pharmacies and doctors dispensing and prescribing enormous amounts of the drug. Purdue continued to send their marketing teams to doctors’ offices to convince them of the safety and usefulness of the drug even though they knew it was being abused in dangerous ways. The company blamed those who became addicted on the addicts. 

All of this was a major factor in the opioid addiction crisis. For many years, the Sacklers and Purdue were able to fend off legal challenges from prosecutors concerned about what was happening in their communities. The problems eventually became too much for Purdue and it declared bankruptcy in 2019. None of the Sacklers were prosecuted for crimes. While they left the company, they were able to keep most of their wealth. However, to the extent it matters, the Sackler name was erased at many of the museums and other institutions which had benefitted from Sackler donations.

Keefe’s book is partly an indictment of the Sackler family. For example, he is quite harsh towards the granddaughter of one of the Sackler brothers, who is a documentary film maker. Madeleine Sackler has never had anything to do with Pharma, but of course some of her wealth is likely derived from what she inherited. At a minimum, she should probably be more upfront about that, but does that mean her films are forever tarnished?

The book does forcefully document the ways the legal system can sometimes let the rich get away with crimes. This is indicated in the prologue, which describes Mary Jo White, a former prosecutor who was appointed chair of the SEC by President Obama, assisting one of the Sacklers in a 2019 deposition.

When I read the prologue, I thought this deposition, just as Chekhov’s gun, would resurface at the end of the book. It does not. But Keefe does quote a lawyer as saying, “Everyone is entitled to a lawyer, but it doesn’t have to be you.” That will have to do.

Finally, the book reminds me of the mangled rendition of what Honoré de Balzac once wrote: “Behind every great fortune lies a great crime.” What Balzac actually wrote in Le Père Goriot was: “Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu'il a été proprement fait.” While this has been translated in various ways, a literal translation is: “The secret of great fortunes without apparent cause is a forgotten crime, because it was properly done.” In this book, Keefe is trying to make sure that the Sackler’s crimes are not forgotten.

The Lexington Column on the U.S. Budget and Debt and Deficits

This will be a brief note on the “Lexington” column in The Economist of February 4, 2023.  The article mainly hammers away at the political dysfunction of the U.S. government budget process: “Both parties have learned that, by luxuriating in polarisation, they can ignore that governing requires trust and compromise. Republicans can have their tax cuts, Democrats can have their spending, and they can blame each other for the debt.”

This is simplistic political analysis. For example, the Trump Administration was not adverse to spending, and deficit reduction has been more of note during Democratic rather than Republican Administrations. Tax cuts have been more characteristic of Republican administrations, but, after a tax cut that went too deep at the beginning of the Reagan Administration, it endeavored to increase revenues. And, parenthetically, I would note that the one of the best tax bills to pass Congress in the last 40 years (or more) was the Tax Reform Act of 1986, which required a bipartisan effort and was set in motion by Republican Treasury Secretaries Donald Regan and James Baker. (Some of its more notable features have since been jettisoned.)

In addition, there is the implied assertion that the current level of the debt is bad or dangerous and that the coming additions to the debt through future deficits is also bad or dangerous. Perhaps this assertion is correct, but the nearest the article comes to making this case is to point out that the debt to GDP ratio is high, that the debt held by the public is $24 trillion, and that the cost of servicing this debt represents 7% of federal outlays and that this will increase as interest rates go up. Numbers meant to be scary are not by themselves a convincing analysis.

Nevertheless, I am happy to note that Lexington did not refer to the headline figure of the debt limit ($31.8 trillion) but rather to debt held by “the public.” In the peculiar way the English language is used by the Treasury, the “public’ excludes government trust funds, such as Social Security, but does include the Federal Reserve Banks, which are technically “private” corporations. If you subtract out from the publicly held public debt the holdings of the Federal Reserve, the resulting number is sometimes referred to as the “privately held” public debt. It’s all very confusing.

For reference, here is my recent post about public debt numbers. A good, objective explanation of the statutory debt limit is in this Pew Research Center article, “5 facts about the U.S. national debt.”

The Debt Limit: A Note on the G Fund and the Exchange Stabilization Fund

The G Fund is one of the funds offered to federal employees as part of the Thrift Savings Plan, the federal employee equivalent to a 401(k) plan.  This fund is invested in one-day non-marketable Treasury securities with an interest rate determined monthly. There is a special provision in the law creating the Thrift Savings Plan that makes the G Fund whole if the Secretary of the Treasury decides to disinvest it entirely or partially due to a debt limit problem once the debt limit issue is resolved. The nonmarketable Treasury securities in the G Fund count against the debt limit, thus, disinvesting the G Fund makes room under the debt limit for the Treasury to issue marketable Treasury securities in order to raise needed cash.

The G Fund is included in intragovernmental accounts. As of the end of December 2022, its assets were $210.9 billion.

The Exchange Stabilization Fund (ESF) is a fund managed by the Secretary of the Treasury. It is primarily used for foreign exchange operations. Here is the Treasury’s brief description of the ESF.

As of November 30, 2022, the ESF had $210.3 billion in assets, of which $17.6 billion were in non-marketable Treasury securities. When the ESF is disinvested because of a debt limit problem, the Treasury does not have the authority to make it whole once the debt limit impasse is resolved.

The Bipartisan Policy Center (BPC) has a description here of what it calls “the big three” extraordinary measures. These are the G Fund, the ESF, and federal employee retirement funds.

Interestingly, Jerome Powell, before he was nominated by President Obama and confirmed to be a governor of the Federal Reserve, worked at BPC. He took a particular interest in debt limit issues, which he knew first hand as an Under Secretary of Treasury for Domestic Finance in the George H. W. Bush Administration. (He was for a time my boss at Treasury.) Probably his efforts at lobbying Republicans in Congress on the debt limit while at BPC during the Obama Administration was a factor in his nomination to the Fed Board.

Debt Limit and Treasury Securities Held by the “Public”

The debt limit reporting in the media is fairly good on the political aspects of the issue, but less good on other relevant aspects.

One issue has to do with the size of the debt. The debt limit is $31.4 trillion and the debt subject to that limit is bumping up against that number. However, reporting I have seen fails to mention that of that $31.4 trillion, about $6.9 trillion is held by intragovernmental accounts, including the Social Security trust funds. The Treasury consequently reports that about $24. 6 trillion is held by “the public.”

However, included in “the public” is the Federal Reserve System. Federal Reserve outright holdings of Treasury securities currently stand at about $5.5 trillion. (The system also reports owning $2.6 trillion of mortgage-backed securities, which they state are “fully collateralized” by Treasury securities.)

Subtracting the $5.5 trillion from $24.6 trillion leaves about $19.1 trillion of “privately-held” debt of the type subject to the limit. This includes foreign holdings, including foreign governments and central banks.

While the Federal Reserve Banks are technically private corporations owned by the member banks, for most analytical purposes they should be considered part of the government. The Fed remits “excess earnings” to the Treasury. Its major expenses are for its operations, interest paid on bank reserves, and interest paid in connection with its open market operations. A major source of income is interest received on Treasury and other securities. (For more on this, see this Fed press release.)

While $19.1 trillion is still a large number, the current reporting misses that close to 40 percent of  the debt subject to limit is debt that the government essentially owes itself or to the Federal Reserve.

A Comment on "A Monetary and Fiscal History of the United States, 1961–2021" by Alan S. Blinder

Prominent economist and former vice chair of the Federal Reserve Board has written an interesting and accessible book on macroeconomic policy from 1961 to 2021. The title is deliberately similar to the tome written by Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867–1960. Blinder clearly wants to emphasize that fiscal policy matters.

Blinder’s perspective of this history is mostly persuasive, and he effectively argues against Milton Friedman’s simplistic and often quoted statement: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” One of the weaknesses of monetarism as a policy guide is its assumption that velocity is more or less constant in the famous identity, MV=PQ. Monetarism holds much less sway among economists than it did in the 70s and 80s.

While I recommend the book for those interested in the subject from historical, political, or economic perspective, I will focus here on Blinder’s comments about economic policy in the first few years of the Reagan Presidency. I did not find Blinder’s analysis here convincing.

When Reagan entered office, the Federal Reserve under Paul Volcker was pursuing a very tight monetary policy and the economy was suffering from a recession. In the summer of 1981, the Congress passed and Reagan signed The Economic Recovery Tax Act of 1981, which provided large tax cuts. Also, there was a large increase in defense spending, and the federal budget deficit increased dramatically.

In other words, monetary policy was contractionary and fiscal policy was expansionary. As we know, this policy mix eventually worked. Inflation came down and the economy recovered. However, in discussing this episode, Blinder attacks economist Robert Mundell.

Blinder states that “according to the mainstream view, contractionary monetary policy (à la Volcker) raises real interest rates, though perhaps only transitorily, and slows the growth of aggregate demand...[E]xpansionary fiscal policy (à la Reagan) raises real interest rates and speeds up the growth of aggregate demand. Put them both together at the same time, as Reagan and Volcker did, and you should expect real interest rates to rise sharply while the net effect on real output depends on how the tug-of-war just sketched works out.” (p. 143). 

He contrasts this conventional view with what Mundell wrote in a 1971 paper: “Monetary acceleration is not the appropriate starting point from which to initiate the expansion [in 1971], because the risk of igniting inflationary expectations. Tax reduction is the appropriate method. It increases the demand for consumer goods, which reverberates on supply...Because of the idle capacity and unemployment, in many industries increased supply can generated without causing economy-wide increases in costs. Tax reduction is not, therefore, inflationary from the standpoint of the economy as a whole.” (p.144). 

There does not seem to be a huge difference between the two views, but Blinder asserts without much discussion that there is. He views the “Reagan-Volcker policy mix” as “a bold experiment” and asks: “Which side of the policy mix debate came out looking better?” He answer that it is “the conventional side, by a country mile.” To prove that, he discusses an increase in real interest rates (defined as the Treasury ten-year rate minus CPI inflation over the past 12 months) and an increase in the dollar exchange rate. However, he has not provided any information about what Mundell may have said about the effect on real interest rates or exchange rates. 

While one can criticize both the size and the details of Reagan’s enormous tax cuts, the size and details of the increase in defense spending, and the effect on the lives of many people suffering from unemployment at least partly due to monetary policy, it is nonetheless true that the economy recovered and inflation came down. Blinder does not like the argument that Mundell essentially made: the government had two policy goals (ending the recession and reducing inflation) which should be addressed with two different policy instruments (fiscal and monetary policy). Blinder may have good reasons to disagree with using fiscal and monetary policy differently when faced with stagflation, but he does not effectively argue why. 

It is not clear whether Reagan or his economic advisers had developed their economic policy with any formal analysis of the combined effect of a contractionary monetary policy and an expansionary fiscal policy. They may have stumbled into it for polical or ideological reasons. Blinder is surely right that Republicans have since then seemed to think that tax cuts are always the answer to whatever the current economic problem is and are effectively more relaxed about budget deficits after the Reagan experience (no matter their rhetoric arguing for balanced budgets).  

It is disapointing though that Blinder does not have a better analysis of the policy mix in the early Reagan years and whether he thinks that there could have been better policies at the time. A better thought out and explained argument against what Mundell was advocating would have been interesting.