THE NEW YORK TIMES BOOK REVIEW 15
AS THE U.S. ECONOMYbounces back from
the Covid shock, we wait anxiously to see
how the Federal Reserve Board will react.
When will it raise rates? How fast will it un-
wind its trillion-dollar asset-purchase pro-
grams? With Build Back Better stalled in
Congress, monetary policy is, once again,
the only game in town.
In recent decades, the Fed has come to
assume an ever more important place in
public life. This is uncanny. There is no pro-
vision for a central bank in America’s Con-
stitution. It has no role in the classic three-
way separation of powers. Yet the question
of who manages money and regulates
credit is foundational for any modern soci-
ety. It is not by accident that the Bank of
England, the mother ship of modern cen-
tral banking, dates to 1694 and the so-
called Glorious Revolution, which set the
British Constitution in its modern form.
America finally equipped itself with a
central bank in 1913. After repeated finan-
cial crises and the populist upsurge of the
1890s, it could no longer be denied that
managing money was an essential func-
tion of government. For nearly 60 years,
the Fed upheld the American currency as
part of a global, gold-backed system. With
Richard Nixon’s decision in August 1971 to
end gold convertibility of the dollar, the
Fed in its current form truly came into its
own. Money and credit are now the cre-
ations of policy and profit-driven business
that have made the independent central
bank into a pivotal institution.
In America, the half-century since the
1970s has also been one of profound social
and political change. Society has become
more polarized on lines of inequality, iden-
tity and cultural politics, so much so that
many feel the “American dream” to be in
question. Declinism clouds the horizon on
both sides of the political aisle.
Given the coincidence, it is tempting to
ask, are these two developments related?
Is the rise of the Fed a symptom or perhaps
even a contributing cause in America’s na-
tional crisis? In his latest book, the journal-
ist Christopher Leonard wants to persuade
us that it is both.
Leonard is the author of several works in
the muckraking genre. Previous titles in-
clude “Kochland” and “The Meat Racket.”
In “The Lords of Easy Money,” he explains
how the central banking elite have pur-
sued a Janus-faced policy. They have van-
quished the forces of inflation convention-
ally understood, while unleashing a fly-
wheel of financial speculation that benefits
the top 10 percent, who own 84 percent of
American equities, and most particularly
the top 1 percent, who control 38 percent.
Leonard doesn’t have much time for for-
mal economics. He plays fast and loose
with terminology and economic logic. But
we get his point and it is a good one. This
has been an era of loose money and the
benefits have been very unevenly distrib-
uted.
Rather than economics, Leonard’s pre-
ferred idioms are the standard story lines
and characters of American populism.
“The Lords of Easy Money” spins a tale of
innocence betrayed that reads like an up-
date of “The Wizard of Oz.” To encapsulate
the history of the Fed in the last 50 years,
Leonard follows the career of Thomas M.
Hoenig, the son of an Iowa plumber who
rose inside the ranks of the Kansas City
Fed. Through Hoenig’s eyes we see the in-
terest rate shock of 1979 and the go-go
years under Alan Greenspan. As Leonard
tells it, Hoenig acquired a deep apprecia-
tion of the risks that excessive credit ex-pansion posed in dealing with bankrupt
community banks and overextended oil
loans. From 1991 to 2011 as president of the
Kansas City Fed, Hoenig had a ringside
seat from which to witness the dot-com
boom and bust and the housing boom that
followed. When crisis struck in 2008,
Hoenig supported the first round of emer-
gency measures to stave off disaster. But
when Ben S. Bernanke, the chair of the
Federal Reserve, attempted in 2010 to
launch a new round of stimulus, Hoenig
reached a defining moment. Again and
again, he voted no, eight times all told in- It was a breach of Fed solidarity, but
Hoenig’s common sense and banking ex-
perience told him that more stimulus
would simply flow into asset prices. By
contrast, as Leonard tells it, Bernanke’s
unprincipled experimentation, in which he
was vigorously supported by his fellow
professor and successor at the Fed, Janet
Yellen, stoked the flames of speculation.
To complete his populist triptych, along-
side Hoenig and the irresponsible wonks,
Leonard adds Jerome H. Powell, the cur-
rent chair. In contrast to Hoenig, Powell is
the slick upper-class operator. Rather than
an example of hard graft, Powell’s is the ef-
fortless success story of a man without
qualities. As Powell climbed gracefully up
the greasy pole, Hoenig found himself side-
lined.
The office politics of the Fed are well
captured by Leonard, as is the intimidating
physical setting. The fact that Hoenig is of
German extraction and had a picture com-
memorating the Weimar hyperinflation in
his office is a striking detail. Striking too is
Leonard’s sleuthing into Powell’s time at
the Carlyle Group and his role as a corpo-
rate raider, wreaking havoc with stalwarts
of American manufacturing and their
work forces.
But all too often the treatment seems
trite. Leonard makes much of Hoenig’s
humble background. But much the same
can be said of Bernanke and Yellen. If they
favored monetary expansion it wasn’t out
of any inherited affinity for Wall Street.
Conversely, Powell is no doubt wealthy, but
as Fed chair he has been more open to is-
sues of social justice than any predecessor.
The context of 2020 and Black Lives Mat-
ter demanded no less.
This is the bigger question that lurks in
the background of Leonard’s book. Central
bankers are powerful. They regulate the
flow of credit. In crises they make life-or-
death decisions. But they don’t determine
the structures within which they operate.
It was Nixon who took the United States off
gold. It was the Clinton administration that
reshaped banking regulations. As the Paul
Volcker shock of 1979 demonstrated, when
the Fed unilaterally yanks the chain, it
risks unleashing havoc.
Of course, the sort of people who end up
on the Fed board are influential insiders.
But figures like Yellen and Powell arguably
have had more opportunity to set the pa-
rameters of the financial system during
their time at the Treasury or in the White
House than they did at the Fed. The Fed’s
overriding mission is to drive the mone-
tary machine, not to redesign it.
“The Lords of Easy Money” opens with
a melodramatic scene in which Hoenig
votes no to the second round of quantita-tive easing in November 2010. He was in a
minority of one. But what would have hap-
pened if he’d had the majority on his side?
What effect would withholding a moderate
dose of monetary stimulus have had? It
would surely not have changed the course
of American social development or politi-cal history over the following decade. The
main effect would have been, marginally,
to slow the recovery.
If you are worried about wealth inequal-
ity in the United States, then the solution is
not to tighten monetary policy but to make
structural changes to the country’s finan-
cial system, starting with the undergrowth
of shadow banking. Serious taxation of
wealth and capital gains would also push in
the right direction.
It would no doubt help if onetime central
bankers, rather than cycling in and out of
private finance, spoke out seriously in fa-
vor of reform. They would be doing the
public a service if they spelled out the way
that their hands were forced by the current
incestuous intertwining of public debt
markets with hedge funds and the like. Ul-
timately, however, it is politics that must
grasp the nettle of change.
In the current dispensation, it may be
flattering for central bankers to be cast as
maestros, but in practice they are less the
lords of easy money than its functionar-
ies. 0Unreserved
The Fed has come to assume an ever more important place in public life.
By ADAM TOOZE
THE LORDS OF EASY MONEY
How the Federal Reserve Broke the Ameri-
can Economy
By Christopher Leonard
384 pp. Simon & Schuster. $30.The Marriner S. Eccles Federal Reserve building in Washington.PHOTOGRAPH BY STEFANI REYNOLDS FOR THE NEW YORK TIMES
This has been an era of loose
money, and the benefits have been
very unevenly distributed.ADAM TOOZEis a professor of history and the
Kathryn and Shelby Cullum Davis chair at
Columbia University. He is the author of
“Shutdown: How Covid Shook the World’s
Economy,” and writes the Chartbook newslet-
ter.