America’s Inflation Antihero Gets a Makeover
Arthur Burns, who headed the Federal Reserve from 1970 to 1978, had a rough few years. Critics say his poor policy decisions drove inflation in his 1970s out of control.
Chris Hughes thinks it’s worth another look. Hughes, 39, is a newcomer to the PhD program at the Wharton School of the University of Pennsylvania, specializing in central banking history. For Hughes, Mark Zuckerberg’s college roommate and Facebook founder, this is the third career move and the first to leave him an estimated $10 million personal fortune. . Hundreds of millions of dollars.
Hughes then bought the liberal magazine The New Republic and served as its publisher for four years. Starting this fall, he will spend his days researching the law and politics of central bank development and writing a book on the history of financial markets and politics.
Hughes, who knows something about reinvention, thinks Burns should reinvent it, too.
he wrote 6,000 word article For the journal Democracy on how America misunderstood the former Fed chairman, NPR’s Planet Money And now he’s bringing his enthusiasm to academic meetings.
what’s his point? He thinks Mr. Burns is portrayed in a way that is unfair to him. And as America approaches inflation, straining the rest of us with grocery stores, used-car dealers, and day care centers, it may offer the wrong lesson.
Burns is often remembered by central banks and business circles as a weak leader who failed to raise interest rates enough to control inflation for fear of doing too much damage to the economy. Mr. Hughes and other Barnes revisionists — a small but growing group of historians and economists who don’t necessarily love him but think he’s been unjustly accused — see him as , concerns about hurting workers and slowing price increases. History often paints him as a political impostor. Contrarians claim he saw inflation control as a project that could and should be shared by the Federal Reserve and elected officials in the White House and Congress.
And as Mr. Burns has been criticized in all nuances for failing to curb inflation, Hughes believes that people will miss the virtues that Mr. Burns’ more mixed view of inflation might bring. I believe that work well.
“I think he’s easily weaponized,” Hughes said in an interview. “Caricatures are worth revisiting.”
Burns plays the antihero role in most stories about the Great Inflation of the 1970s. Stories like these are frequently repeated in academia and news media as warnings about what not to do.
A conservative economist, Burns led interest rate hikes in the 1970s, but never raised inflation to a manageable level. And succumbing to political pressure may have contributed to his pursuit of that back-and-forth approach.
President Richard Nixon appointed Burns as Fed chairman I wanted him to lower the interest rate Towards the 1972 elections.of a recorded conversationNixon urged Burns to lobby the Fed’s policy committee to lower borrowing costs.
“Give me a little kick in the butt,” Nixon was recorded saying. Fed officials cut interest rates in the second half 1971.
Inflation deepened as the Fed’s interest rate movements remained tame rather than decisive, and Mr. Burns’ name eventually became synonymous with bad central banks, indecisive and politicized. . He continues to be a historical figure in Volcker, from 1979 until 1987 when he was the chairman of the Fed and pushed interest rates up. to nearly 20 percent In 1981, the economy plunged into a deep recession, and finally the rising prices calmed down. Hated by many at the time, Mr. Volcker is now remembered as an almost heroic figure.
The Burns and Volcker analogy remains strong even today, as the Federal Reserve is battling the first significant inflation since the 1970s and 80s. Fed officials regularly stress that they believe Mr. Burns’s style of irresponsible approach to slowing the economy and raising interest rates to keep inflation in check is a mistake.
Volcker, meanwhile, described his approach as a “continuity.” Current Fed Chairman Jerome H. Powell enthusiastically repeats the phrase.
It’s not clear whether the Federal Reserve will pursue a strategy like Mr. Volcker’s. Mr. Powell has publicly stated that the situation today is different from his situation in the 1970s. Officials also have no intention of pushing interest rates to the double-digit highs he reached in 1981 and his 1982. enough to cause concern among some liberal economists and historians.
Hughes agrees that a rate hike was necessary, but he also wants a more detailed reading of Burns’ legacy. He has spent the last four years studying the history of central banking. Among them, he works as an economics graduate student at New York City’s New School and lives with his former Democratic congressman husband and her two children. He is a Senior Fellow in the New School’s Institute of Race, Power, and Political Economy.
His own rapid jump from middle-class adolescence in North Carolina to young adulthood at the top of the Bay Area elite is what pushed him forward. estimated net worth With just under $1 billion in cash before his 30th birthday, he explores the design of the country’s economic system, especially how it intersects with government policies and how it drives huge inequalities. I was intrigued by how tolerant they were.
Perhaps no part of its design is as complex or well understood as the Fed.
“Some people look to Burns as an example of what not to do,” said Hughes, who quickly became intrigued in the 1970s. increase.”
The inflation-employment trade-off could be particularly tough in the coming months. Officials have rapidly raised the main policy rate to nearly his 5% over the past year. At a meeting scheduled for May or shortly thereafter, the central bank is poised to consider when it should stop raising rates.
And as 2023 progresses and growth slows, unemployment is expected to rise. Policymakers will need to decide how they want to strike a balance between fostering a strong job market and keeping inflation under control in a slowing economy. Should policy makers keep interest rates high even if unemployment rises significantly?
Mr. Hughes and those who agree with him argue that Mr. Burns avoided very high interest rates for reasons other than his politics. Although he loathed inflation, he blamed soaring prices on supply-related forces, including the bargaining power of unions. Since the tools of the Federal Reserve primarily affect demand, he thought other branches of government could do better to tackle these forces. Dependence comes with unacceptable financial costs.
Hughes said he was working from a “place of ideological conviction.”
Still, many economists think Mr. Burns deserves a bad reputation, whatever his motives.
Former Fed Vice Chairman Donald Cohn, who worked at a local Fed during the Burns era, said the Fed took so long to keep inflation under control that households and businesses expected rapid inflation in the future. It changed consumer and business behavior – people wanted bigger price increases and businesses introduced regular price increases.
Once that happened, inflation became a more permanent feature of everyday life and harder to eradicate. Arguments are made that it may not have been necessary to cause it.
“It felt like we were trying to find a way to bring inflation down without paying a price, but it just wasn’t possible,” Cohn said. Views from the Federal Reserve’s research staff.
“The Fed was treated badly and did not perform well,” he added.
Burns’ reputation got off of flameSo was the idea that controlling inflation should be a joint effort of the Fed, Congress and the White House.
Many economists see the Fed’s independence from politics and its clear focus on price control as a feature, not a bug. The economist even argues that his Fed doesn’t need to act like Volcker, especially since it doesn’t act like Burns right now.
But skeptics of Volker’s handling of the economic shock say he was partly lucky. The oil embargo, which had pushed up inflation significantly, was eased during his tenure.
Given the huge cost to workers that Mr. Volcker’s policies have caused, some have questioned: Even if it fails to stem inflation, can we conclude that all of Burns’ approach was wrong?
“Our simple story of what happened makes it difficult to comprehend the complexity of what is happening now,” said Lev Menand, who studies money and central banking at Columbia Law School. doing.
Hughes argued that: his essay Modern policymakers can learn from Mr. Burns’ intergovernmental cooperation, he announced last fall. He believes tax increases, revisions to zoning rules, and other frequent Democratic priorities could help keep prices down.
Isabella Weber, an economist at the University of Massachusetts Amherst, suggests that prices and wages should be controlled. be reconsideredThe design and implementation in the 1970s didn’t work, but it never failed.
However, such interventions, even if successful, are not guaranteed and take time. How central bank officials today understand Mr. Burns as a disaster and Mr. Volcker as a savior could quickly become important.
And Peter Conti-Brown, a Fed historian at Wharton and a thesis adviser to Hughes, said he believes Burns deserved most of the blame he received for failing to control inflation, but Volcker I think he may have failed. Improperly lionized.
Promoting both maximum employment and stable inflation is the Fed’s twin job, a balancing act, and to do that, act like Mr. Volcker, who is firmly focused on inflation. There is no need, he said, to behave like Mr. Burns, who is focused on yield. .
“I think there are very few, if any, heroes in the history of central banking,” Contibrown said. “There are very few villains.”