Stephen H. Axilrod

Between Intuition and Empiricism

If monetary policy does not result in irrational exuberance for you, then this book isn't for you. Stephen H. Axilrod, an insider who worked in the Federal Reserve under Burns through to Volker, provides valuable insight into the decision made and not made. Axilrod reflects both professionally and personally and is often quite candid in his assessments of the tenures from Martin all the way to Bernanke.

While Axilrod comments that the social and political context were crucial in shaping the often conservative decision-making of the Chairman, he does not sufficiently explain with enough detail in order for the average reader to fully comprehend the many variables at play. Otherwise, I felt that Axilrod did an admirable job explaining the complexity of monetary policy, its relationship to capital markets, and the many mechanisms the Fed uses to combat inflation and maintain employment.

Fundamental in understanding the many approaches each chairman brought to the job of running the Fed is the delicate balances, between intuition and empiricism, between the Harvard-school and the Chicago-school. In conjunction, combating inflation is itself a balancing act between the price of money and the supply of money.

As for dirt spilled. Axilrod is sympathetic towards Burns despite allowing inflationary pressures to climb at the end of his tenure because according to Axilrod he didn't think there was enough political will for Burns to take the measures necessary. Volcker is the hero of the story if there is one here, Axilrod himself takes credit for helping to shape the monetary policy that looked beyond the federal funds rate. Axilrod is most unflattering towards Greenspan, saying he inherited Volcker's legacy of low inflation, and helped to contribute to the 2007 credit crisis by allowing markets to over-leverage through an artificially low federal funds rate. Finally, Bernanke's legacy is open-ended given his short tenure, however Axilrod makes the comment that Bernanke was a reluctant intervenor who could have acted sooner to prevent the subprime mortgage crisis.

My final comment is that I did find the book dry at times, and this is coming from someone who enjoys economics which is saying something. Still, this is an important book and Axilrod's inside commentary is a welcomed contribution and therefore I do highly recommend the book.… (more)