Now We May Perhaps to Begin?

Explaining his doubts about the hastily-contrived response to last fall’s banking panic – George Bush’s Troubled Asset Relief Program and Barack Obama’s subsequent stimulus package – John Taylor told the following story last week.

His wife had given him a new set of golf clubs for his birthday, including a driver with a club-head so large that his game couldn’t help but dramatically improve. When his handicap remained the same two years later, he thanked her profusely all over again. “Think how much worse my game would have become without it.”

Taylor, the celebrated author of “the Taylor rule” for pursuing price stability (a straightforward compact requiring the Federal Reserve Board to tighten whenever inflation exceeds 2 percent, or when the economy grows faster than what is deemed to be its sustainable rate), was giving the inaugural Martin Feldstein Lecture, created as the centerpiece of National Bureau of Economic Research’s Summer Institute, which Feldstein brought into being thirty years ago.

Some 1,500 policy-oriented empirical economists from around the world will have streamed to Cambridge by the end of July for some part of four weeks of meetings.

A Stanford professor who served under the elder Bush as chairman of the Council of Economic Advisers and Federal Reserve Board governor, and as a high Treasury official for a single term under his son, Taylor has become the leading critic of Alan Greenspan’s conduct of monetary policy, especially during George W. Bush’s second term.

It wasn’t much of a lecture, at least compared to Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Taylor’s little broadside of last spring. In fact it was more of a pep talk, to bear down empirically on the sequence of events of the last few years, including a pitch for a “Journal of Real-Time Policy Evaluation.”

“The idea that comes out of somebody’s first back-of-the-envelope calculation is not necessarily the best idea,” he said mildly. The need is immediate for critical analysis, he continued, one it-could-have-been-otherwise after another – and for better, more frequent data.

Naturally, the talk contained a capsule description of Taylor’s broad critique: a “Great Deviation” from sound monetary policy of 2003-06; a fateful failure to deal with incipient crisis, lasting from August of ’07 to August of ’08; and, finally, the Panic of September ’08; followed by a flurry of urgent responses in the heat of a presidential election. His views, he said, were not yet fully formed.

(You don’t have to agree with Taylor that markets were all but blameless in bringing about the crisis, that the “government did it,” to recognize that he is right about this much: “We’d better find a way to have policy that is smoother, more predictable, to insure that the government doesn’t cause these problems in the future.”)

So never mind Sarah Palin. If you think the Republican Party has run out of ideas, you are simply not paying attention. The ungrammatical heading of this column, incidentally, is a version of the last line of Portnoy’s Complaint, by Philip Roth, reflecting my conviction – more nearly a hope – that, after all the tumult of the last twenty-five years, at last adult economic analysis may begin.