BOOKS

...What Volcker did, in 1979-1980 and 1981 -1982, was to throw the economy into a recession and, thereafter, prevent a full recovery...

...But the public is neither consulted in advance nor informed of the outcome...

...jects with respect as intelligent, serious, and well-motivated people grappling (like all of us) with complex problems on the basis of imperfect theories and inadequate information...

...Volcker correctly assumed that, for all their belligerent talk, the Congressional reformers . . . only wished for the punishment to stop...

...Except for Alan Greenspan, none of the Reagan appointees had primary ties of allegiance to the money power...

...As a result, inflation has disappeared from the political agenda, and on this achievement Volcker's present high reputation rests...

...Greider's capacity for empathy sometimes deserts him in his treatment of secondary players...

...Given the deep protective sentiments toward the Federal Reserve in Congress, there was no prospect of "fundamental reform...

...The new Administration formed a powerful consensus with the financial community to stem inflation at all costs...

...His work will stand, I think, as the definitive portrait of the Federal Reserve Board in our time...

...Only a handful of individuals, among them top Administration officials and selected commercial bankers, are in a position to offer advice or exert pressure on the FOMC...

...All this is done with grace and style...

...Greider writes, "The Federal Reserve, it seemed, was right not to take Congress too seriously...

...In this matter the Democrats played their small role properly, I think, and deserve better treatment for it...

...In fact, a recent survey of Wall Streeters turned up an overwhelming favorite for Treasury Secretary in a Democratic Administration...

...The heart of Secrets of the Temple is Greider's series of portraits of Volcker and his colleagues on the Federal Reserve Board and his account of the actions they took from 1979 through 1986...

...industry's ability to compete in international trade...

...There is also extended, anecdotal treatment of the real economy in recession and recovery, which give a personal flavor to the historical account...

...Fiscal policy, affecting taxes and spending, is shaped in public, the product of complex negotiations between President and Congress joined avidly by the press and by self-styled business and financial leaders...

...he finds, rather, that it is a product of the special interests to which the Federal Reserve responds, the private politics in which it operates, and its deliberate isolation from the broader politics of the entire economy...

...The Treasury might or might not prove to be a better custodian than an independent board...

...As the recession deepened, the imperatives of lower interest rates and economic recovery grew stronger...

...But he also makes clear that it was not, as some imagine, a matter of Volcker's personal will and political courage...

...As Greider observes, "in this instance, it might have taken more courage to resist...

...He is unfairly harsh on those Democratic members of Congress-Senator Robert Byrd and Representative Henry Reuss (for whom I then worked)— who in 1982 sought, by various legislative tactics, to put pressure on the Federal Reserve...

...Look," Volcker once said to a delegation of state legislators from the farm belt, "your constituents are unhappy, mine aren't...

...To a great extent, a revolution of substance has already occurred: In reaction against Volcker, a pro-growth, anti-recession Board of Governors has been placed in command at the Federal Reserve...

...But the cost has been the loss of millions of jobs, enormous disruption and suffering among small businesses, farmers, and manufacturing labor, and a continuing erosion of U.S...

...In Secrets of the Temple, William Greider attempts to lighten the shadows and, in so doing, strengthen the influence of public politics over monetary policy...

...From then until his resignation in July 1987, as Greider relates, Volcker was in a minority of one or, perhaps, two against the expansionists appointed by President Reagan...

...What else should Reuss and Byrd have wanted but lower interest rates, easier credit, and recovery...

...In early 1982 the planning went awry...

...But monetary policy, affecting interest rates and the availability of credit, is shaped by sudden and unexpected action that is taken, if not exactly in secret, then certainly in the shadows...

...There is constant discussion and argument, but important decisions that cut or raise taxes or reform the tax code or shift spending priorities are taken at most only once every year or two...

...And, as Greider reports, "Volcker was all over the Hill, trying to talk everyone out of the Reuss-Byrd proposals...

...The Federal Reserve wields its great power in isolation from the political process...

...Formal decisions are made in closed meetings by an obscure group of twelve officials, the Federal Open Market Committee (FOMC), that includes the seven Presidentially appointed members of the Federal Reserve Board...

...Others who need urgently to know about its decisions—financial market participants, attentive members of Congress, and a few alert reporters—have ways of finding out...

...Greider achieves this result by breaking with a common practice of Federal Reserve critics, whether of the Left or Right, in one fundamental way: He treats his subJames K. Galbraith is an associate professor at the Lyndon B. Johnson School of Public Affairs, University of Texas at Austin...

...Paul Volcker, the former chairman of the Fed who stands at the center of this book, consciously served a constituency composed of those citizens whose top priority it was to end inflation...

...if the locus of power shifts, the efforts and influence of high finance will shift with it...

...by James K. Galbraith In the contests over economic decisionmaking in America, light falls on one arena, action occurs in another...

...A distrustful Administration added one supply-sider after another to the Federal Reserve Board until, in February 1986, the chairman could no longer command a majority...

...Greider documents the changes in the political climate, in the country, in world financial markets, in the Administration and Congress that ultimately compelled the Federal Reserve to admit error and abandon its monetarist course...

...central banking in the Populist revolt against the gold standard, about the development of Keynesianism at the Federal Reserve during the New Deal, about Arthur Burns and his "sordid" attempts to ingratiate himself with his various bosses: Richard Nixon in the reelection boom of 1972 and even Jimmy Carter when Burns was seeking reappointment as chairman of the Federal Reserve in 1977...

...This, in turn, began the unraveling of Volcker's sway...

...My own judgments lead elsewhere...

...Greider doubts, for good reason, that the benefits have been worth the costs...

...You guessed it: His name is Paul Volcker...

...There is much useful secondary information in this book—about the origins of U.S...

...Greider's sympathies evidently lie with an end to the formal independence of the Federal Reserve from the Treasury and with a return to a far stronger system of direct regulation of credit—a return to the staid regime of low interest rates and credit rationed for specific purposes, such as housing, that characterized the New Deal and early postwar periods...

...We see"how the climate changed from the time of Volcker's arrival late in the Carter Administration, which had no fixed view on monetary matters unless aimless desperation can be called a viewpoint, through the short recession of 1980 and the arrival of the Reaganites in 1981...

...the Fed's chairman merely joined a political stampede...

...But of course...

...Greider documents beyond all cavil that the great recession was a planned event...

...Now, the compelling task is to institutionalize the opening in the private politics of the Federal Reserve that this strange accomplishment represents...

...Stif-fer regulation, though necessary, cannot put the financial markets back into their Pandora's Box...

...What reforms of the Federal Reserve System should progressives seek...

...This body meets every six weeks and makes major decisions as often as three or four times a year...

...By then it was too late to save the Administration from a stinging defeat and the effective loss of Congressional control in the mid-term elections of 1982...

...I absorbed the first 400 pages in a single sitting...

...Greider does not attribute the damage they do to incompetence or conspiracy or wicked intent...