Avoiding Crisis Is Not Creating Prosperity

How different are the impacts of fiscal stimulus and monetary policy? That is a question Adam S. Posen, president of the Peterson Institute for International Economics and this week’s guest on Masters in Business, has spent decades researching on behalf of central banks. Federal Reserve actions trend toward the prophylactic in nature, and while they can work to prevent catastrophe, they cannot create prosperity alone. 

Posen served as an economist in international research at the Federal Reserve Bank of New York (1993-94), and was an external voting member of the Bank of England’s Monetary Policy Committee (2009-12). He has been President of the Peterson Institute since 2013. Throughout his career, Posen has contributed to research regarding monetary and fiscal policies in the Group of 20 economies, as well as public policy on inflation targeting and developing new approaches to financial recovery and stability. In 1998, he was one of four co-authors of a book on “Inflation Targeting” with future Fed Chairman Ben S. Bernanke.

Prior to the pandemic, the Fed underestimated labor slack and was overly concerned with inflation rather than recognizing deflation. The failure of Congress to pass significant fiscal stimulus after the financial crisis was a recipe for a weak recovery and increasing wealth disparity. We discuss several of the failures that led to the financial crisis and the slow recovery. Posen puts less blame on the Fed’s overly accommodative monetary policy and more on the nonfeasance of Fed Chairman Alan Greenspan as regulator.

A list of his favorite books are here; A transcript of our conversation is available here Monday.

You can stream and download our full conversation, including the podcast extras on iTunesSpotifyStitcherGoogleBloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Penny Pennington, Managing Partner of Edward Jones. The 98-year-old Fortune 500 financial services firm has more than 7 million clients, $1.3 trillion in assets under management and 17,000 financial advisors. Pennington is first non-family member to manage the firm. She is ranked #33 on Fortune’s Most Powerful Women in Business list.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

©2020 Bloomberg L.P.

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