My Review* of Nick Timiraos' "Trillion Dollar Triage: How Jay Powell and the Fed....."

 

Bagehot on Steroids

 

Nick Timiraos, the chief economics correspondent of The Wall Street Journal, has written a hagiographic account of Fed Chairman Jay Powell’s role in saving the economy from the lockdowns associated with the COVID-19 pandemic. Hagiographic or not, Powell does deserve kudos for the way he acted with alacrity and boldness in stemming the steep economic decline that the economy faced in March-April 2020. Further, he continued his stimulative policies by making full employment a higher priority than combating inflation. In other words, his goal was to create a high-pressure economy(Shulmaven: The Fed and the High-Pressure Economy)     which in combination with highly stimulative fiscal policies brought the unemployment rate down from its peak of 14.7% in April 2020 to the current 3.8% rate.

 

My title comes from one Timiraos’ chapters where he invoked the central banking policies enunciated by Economist editor Walter Bagehot. According to Bagehot the role of a central bank in a crisis was to lend aggressively against good collateral at a penalty rate. In this case Powell received U.S. Treasury guarantees to lend on practically any and all collateral. That policy along with $120 billion/month of quantitative easing rescued the economy.

 

Timiraos gives credit to Powell for understanding faster than most government officials how devastating the pandemic would be. He was way ahead of a hostile Trump Administration and its public health authorities.

 

In March 2020 I was responsible for the U.S. forecast for the UCLA Anderson Forecast. On March 16, 2020, we published the first interim forecast in the history of the project under the title “The Sum of All Frears,” where we made the case that the U.S. economy was already in recession.(Shulmaven: "The Sum of All Fears," UCLA Anderson Forecast March 2020 Interim Forecast ) We were the first or very near first among the major economic forecaster to make the recession call. However, we were very wrong as to the steepness of the economic decline and the steepness of the subsequent recovery. The combination of very aggressive monetary and fiscal policies did, indeed, save the day.

 

Nevertheless, by January 2021 we were worried about the inflationary consequences of the all-out policies. I published a UCLA Economic Letter entitled “Is the Pandemic Hiding Future Inflation” where I outlined the case that the Fed’s highly stimulative polices ignited an asset price boom which would lead to consumer price inflation. ( Shulmaven: "Is the Pandemic Hiding Future Inflation," UCLA Economic Letter, January 2021) That is exactly how it played out and the Fed with all of its Ph.D. economists were asleep at the switch. It is here where I am critical of Timiraos’ account. He should have had a chart highlighting the Fed’s balance sheet expansion and the extraordinary growth of the money stock. At its peak the growth of M2 reached 28% year-over-year in February 2021 and a still high 11% as of February 2022. I know it is not fashionable to talk about money growth and inflation, but with current inflation running at 7.9%, you can’t really avoid it.

 

Timiraos talked to all of the major players and senior staff officials. My guess is that he talked extensively to Powell, Treasury Secretary Mnuchin and White House economics advisor Kudlow. There is a great deal of detail in the book, sometimes too much that it reads like a very long Wall Street Journal article. That said, Timiraos has written an important history of a truly epochal time that we are still living through.

*-Amazon has yet again had a problem in posting reviews.

The review was just posted on Amazon 3/17. The full URL is :   Bagehot on Steroids (amazon.com)