This week, we speak with Adam S. Posen, president of the Peterson Institute for International Economics. Over the course of his career, he has contributed to research and public policy regarding monetary and fiscal policies in the G-20, inflation targeting, European integration since the adoption of the euro, China-U.S. economic relations, and developing new approaches to financial recovery and stability.
Posen served as an economist in international research at the Federal Reserve Bank of New York (1993-94); He was an external voting member of the Bank of England’s Monetary Policy Committee (2009-12); and has been President of the Peterson Institute since 2013. In 1998, he was one of the co-authors of a book on “Inflation Targeting” with Ben S. Bernanke.
We discuss the failures that led to the great financial crisis, and he puts less blame on the Fed’s overly accommodative monetary policy and more on the malfeasance of Fed Chair Alan Greenspan radical deregulation. He cites his colleague Prof Michael Lussa of University of Chicago, who observed “Just as you don’t want a conscientious objector as a commandant of the Marine corps, you don’t want Alan Greenspan as the lead regulator of the US financial system.”
Posner explains the different impact of fiscal stimulus versus monetary policy has been. The Fed is more prophylactic in nature, and why they can work to prevent catastrophe, they cannot create prosperity by themselves.
In the last cycle, the Fed underestimated labor slack and were overly concerned with inflation rather than recognizing deflation. Add to that the failure of Congress to pass fiscal stimulus and you have a recipe for a slow weak recovery and increasing wealth disparity.
Be sure to check out our Masters in Business next week with Penny Pennington, Managing Partner (CEO) of Edward Jones. The 98-year old Fortune 500 financial services firm has over 7m clients, with $1.3 trillion in assets and 17,000 financial advisors. Pennington is first non-family member to manage the firm; she is ranked #33 in Fortune’s Most Powerful Women in Business list.