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The Politics of Recession:
Liberals vs. Conservatives
- Abstract
BEFORE the current recession began many economists were agreed that, although the science of economic forecasting was closer to meteorology than astronomy in precision, we knew in a rough way what to do to reverse the course of eco- nomic contraction once the contraction was identified. The middle-of-the-road economists probably concurred in the sequence of steps for dealing with a recession which Professor Arthur F. Bums, former chairman of the Council of Economic Advisers, outlined in a series of lectures delivered in the autumn of last year.* Appropriate policy should begin with an easing of credit. Here the central agency is the Federal Reserve Board. Most literate Americans can recite the litany of that agency’s powers to curtail reserve requirements, lower the interest rates the Federal Reserve banks charge for advances to commercial banks, and increase the supply of cash by judicious purchases of government securities from banks, life insurance companies, corporations, and pension and mutual funds. So much in the way of public education the recession must be credited with. One important uncertainty of monetary policy, however, is perhaps less widely appreciated. Because the Federal Reserve Board is an autonomous agency, the President has no direct, legal control over credit policy. In this recession, the President’s economic advisers have differed almost openly with the Federal Reserve Board about the timing and extent of monetary intervention. But legally, the inevitable last word in such disputes remains with the Federal Reserve Board.
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