Economics is still the dismal science for most educated Americans. It remains so despite the guys-and-dolls jargon of the risk-money side of the profession: greenmail, white knights, Ivan the Terrible, poison pills, golden parachutes, snake in the tunnel.
It remains so despite TV network simplifiers who use Barbie dolls, Monopoly paper money, piggy banks, scales and other props to try to explain the dismal world--the falling dollar, trade deficits, inflation, deflation, Third World debt. (I'm still waiting for some network financial pundit to stick pins into Barbie to explain voodoo economics.) Even such Laffer-a-minute punsters as Louis Rukeyser on the tube and Alan Abelson and Herb Stein in print often presume too much advance knowledge on the part of their audience. The latter are likely to be amused without being further educated.
Given this track record, it is extraordinary that William Greider has been able to make America's central bank, the Federal Reserve, and the long historic battle of American populism versus Wall Street come dramatically to life in this massive book.
In case you've forgotten, Greider is the former Washington Post assistant managing editor who plied David Stockman with breakfast coffee that acted like truth serum. Out of their long conversations came an Atlantic Monthly article and a book that rocked the economic composure of the Reagan Administration. It indicated that for some White House advisers Reaganomics was more about tax relief than cutting back federal government.
Greider has since switched to writing for Rolling Stone magazine. But this book belongs in the same category as two exposes by his former Washington Post colleague Bob Woodward. Where Woodward took American readers breathlessly inside those other temples of secrecy, the Supreme Court and the CIA, Greider penetrates a temple he would argue was even more subtly beyond the control of voters.
Americans certainly deserve to know how all of the machinery of their government really works. But in this work, as in Woodward's Supreme Court penetration, there are flaws. Greider has done a thorough research job. He has interviewed many of the principal characters of the Volcker era. He has been at pains to re-create the action as only an omniscient New Journalist can. He has done a superb job of clarifying the basic economic equations of monetary and fiscal policy. Through much--but not all--of the book he has tried to present opposing views of each economic move by the Fed or White House. And yet the overall effect resembles what the French say of their high school graduates: that they know everything--but nothing else.
Basically, Greider starts by giving you the impression he is hitting a clean single to center field. Actually he is stretching for an inside-the-park homer. The single is in his behind-closed-doors narrative drama that starts with Jimmy Carter's reluctant appointment of Paul Volcker, the Calvinist Catholic keeper of the nation's financial conscience. The narrative runs through the Volcker/Ronald Reagan era, with its great bull market, conservative rhetoric and massive deficits.
It soon becomes apparent that Greider is pulling his hit to left of center. And he is heading beyond first base.
First, he uses the short period from 1979 to almost the present as an opportunity to draw lessons about the whole span of American economic history.
In the foreground we see Volcker cutting a swath through stagflation, turning one steering wheel of the dual-control federal vehicle toward money-supply austerity and causing deep recession, while supply-siders wrench the other steering wheel, the budget, toward a national binge and huge deficits and indebtedness. What Greider particularly wants us to see in this foreground is a redistribution of America's income. Where the New Deal redistributed income to blue-collar and no-collar Americans, in Greider's analysis the Reagan era diverted it back toward white-collar and black-tie America.
Behind the Volcker drama--in the near background--we catch glimpses of a parade stretching through American history. From Alexander Hamilton to Andrew Jackson and early banker-bashing populists; through the Gilt Age and its Robber Barons; then to the advent of the income tax; to Woodrow Wilson and the founding of the Federal Reserve; on to Roaring '20s moves to counter the progressivity of the income tax, the Depression, and the conversion of conservative Mormon banker Marriner Eccles to Keynesian government pump priming; to Nixon's initial surprise at finding that he couldn't control his first Fed chairman; and finally back to the crucial change in Fed targets and tactics under Volcker.
Beyond both of these running narratives, Greider introduces his broadest theme, his erstwhile home run. This is his attempt to contrast the openness and equality inherent in democracy with the sanctum-sanctorum secrecy and oligarchic nature of the Fed. He makes a vigorous case that the latter can be manipulated to favor the already rich few against the laboring many. Unfortunately, in so doing he seems seriously to undervalue the routine pressure-control job that all central banks try to perform.
There is no point in fooling ourselves by denying that the Fed's belt-tightening hits the American people unevenly. It is, after all, primarily the wealthy who buy corporate and government bonds and profit from higher interest and monetary stability.
But there's no point in naively agreeing to Greider's myths either, however earnestly he may offer them. For instance, he argues that the inflation of the late 1970s was an admirable means for redistributing wealth from older Americans to younger Americans. Undoubtedly it was. For a time. But ultimately the piper must be paid--and sadly, by youth in the future. Neither Greider to the left of center nor Reagan to the right seems to believe that perpetual-motion machines have not yet been perfected. The Greider machine would work wonders by having generation after generation borrow rather than save, creating some kind of time-release trickle-down from old to young. The Reagan machine is equally mystifying, and not unlike the Lyndon Johnson machine. It promises to produce guns and butter without paying--cutting taxes to balance budgets swollen by both entitlements and military growth. Ironically, despite tax cuts and the stimulus of tax-shelter IRA pension programs, the supply-side vehicle has decreased rather than increased the national savings rate.
The muckraking of such modern journalist/researchers as Woodward, Jonathan Schell and Greider is more dispassionate on the surface than the indignant probing of earlier muckrakers. That change of investigatory temperature goes with our modern taste and with the journalistic goal of cool objectivity.
Ironically, one of Greider's most pungent arguments for his digs at Volcker and the Fed is the failure of orthodox journalism to do the job. "The Fed was a political institution of the American system, capable of altering the lives and fortunes of private citizens more directly and forcefully than most other components of government, yet the press covered it sparingly and deferentially. . . Above all, the press treated the central bank as a benevolent nonpolitical institution, somehow divorced from the normal combat among interest groups in Washington and utterly uninterested in the politics of winners and losers."
Near his conclusion, Greider parts decisively from any semblance of dispassion. He salutes Volcker's "stern brilliance" but criticizes the Fed chief's victory over inflation and the recovery that follows as a "hollow" triumph that did not keep "its moral promises to its victims."
The stratified America of winners and victims still exists. But much of the middle class is enrolled in the world of accumulated money via pension funds rather than savings and personal investment. That large segment of the American democracy is interested in predictability and stability of money. Admirable or not, this marks a tendency of middle-class Americans to march in the Swiss direction--toward democracy tinted by financial concerns.
Greider is right about the press. Much more intelligent probing of monetary decisions would help the politicians and the voting public. But the press will not help American democracy if it sees money issues as the only central problem for a democratic society. The task of maintaining a living, progressing civilization is far more complex. At least as important: making sure that quality education is available to all--that individual talent is not wasted because of one's class standing at birth.
It would be destructive if the press went hounding, when it scrutinizes the Fed, only after alleged conspiracies or favoritism. The media ought also to be examining such time-honored questions as how to coordinate central bank monetary policy and White House-Congress fiscal policy. That's intrinsically dull stuff. The best lesson from Greider may lie less in ideology than in learning how to make that dull stuff come alive.