SPECIAL REPORT No. 207 | FEBRUARY 13, 2019 Monetary Policy: A Lecture Series Edited by Norbert J. Michel, PhD Foreword Norbert J. Michel, PhD Monetary Policy: A Lecture Series Edited by Norbert J. Michel, PhD Foreword Norbert J. Michel, PhD SR-207 This paper, in its entirety, can be found at: http://report.heritage.org/sr207 The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002 (202) 546-4400 | heritage.org Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress. SPECIAL REPORT | NO. 207 FEBRUARY 13, 2019 Table of Contents Contributors ...........................................................................................................................................................................................v Foreword .................................................................................................................................................................................................. 1 The Federal Reserve at 100: A Panel Discussion ............................................................................................................. 5 A Brief Tour of the Fed’s Historical Performance ......................................................................................................... 5 Lawrence White The Federal Reserve’s Mythical Reputation ...................................................................................................................... 9 George Selgin The Fed’s Performance During the 2008 Crisis ............................................................................................................. 14 Gerald Dwyer An Introduction to Bitcoin and Its Regulatory Environment ............................................................................... 19 George Gilder Nominal Gross Domestic Product Targeting as a Policy Rule .............................................................................. 21 Scott Sumner Money: How the Destruction of the Dollar Threatens the Global Economy—and What We Can Do About It ................................................................................................. 31 Steve Forbes The Forgotten Depression—1921: The Crash That Cured Itself ........................................................................... 37 James Grant Monetary Policy Based on Rules ............................................................................................................................................. 43 John Taylor Conclusion ............................................................................................................................................................................................. 49 iii SPECIAL REPORT | NO. 207 FEBRUARY 13, 2019 Contributors Gerald Dwyer earned his PhD in economics from News Hour. He also contributed an essay to the sixth the University of Chicago. He is a visiting professor edition of Graham and Dodd’s Security Analysis. A for- and BB&T scholar at Clemson University, where he mer Navy gunner’s mate, he holds a master’s degree taught from 1989 to 1999. He teaches as an adjunct at in international relations from Columbia University, the University of Carlos III in Madrid and at Trinity and he is a member of Phi Beta Kappa and a trustee College in Dublin. He is a former vice president at the of the New York Historical Society. He and his wife Federal Reserve Bank of Atlanta, where he served as Patricia live in Brooklyn; they are the parents of four director of the Center for Financial Innovation and grown children. Stability; he retired from this position in 2012. He Steve Forbes was born in 1947 in Morristown, helped to found the Society for Nonlinear Dynamics New Jersey; he earned a bachelor’s in history from and Econometrics and has served as its president and Princeton in 1970, and for approximately 10 years, he as its treasurer. He serves on three editorial boards: served on the Board of Trustees at Princeton. Cur- Journal of Financial Stability, Economic Inquiry, and rently, he is chairman and editor in chief of Forbes Finance Research Letters. The author of several books, Media. The company’s flagship publication,Forbes , essays, and articles, Dwyer is currently studying the is the nation’s leading business magazine, with a cir- ongoing financial crisis with its implications for eco- culation of over 900,000. The combined Forbes pub- nomic growth. lications have reached more than five million readers George Gilder is the co-founder of the Discov- worldwide. A widely respected economic prognosti- ery Institute and the chair of the Institute’s Cen- cator, Steve Forbes is the only writer to have won the ter on Wealth, Poverty, and Morality. The author of highly prestigious Crystal Owl Award four times—a several books, he is widely known for his influential prize given to the financial journalist whose econom- book Wealth and Poverty, an international bestseller ic forecast for the coming year proved most accurate. on supply-side economic theory first released in 1981. He is the author of several books, and he serves on He has served as chairman of the Lehrman Institute’s the boards of several organizations, including the Economic Roundtable and as program director for Ronald Reagan Presidential Foundation, the Foun- the Manhattan Institute. His writing has appeared in dation for the Defense of Democracies, and The Heri- Forbes, Harper’s, National Review, and The Wall Street tage Foundation. Journal, among other publications. He lives in New Norbert J. Michel, PhD is the director of The York with his wife. Heritage Foundation’s Center for Data Analysis, James Grant is the founder and editor of Grant’s where he specializes on issues pertaining to financial Interest Rate Observer, a twice-monthly journal of markets and monetary policy. He edited, and contrib- investment markets. He began his career in jour- uted chapters, to two books published by Heritage: nalism in 1972 at The Baltimore Sun, then joined The Case Against Dodd–Frank: How the “Consumer the staff ofBarron’s in 1975, where he originated the Protection” Law Endangers Americans and Prosper- “Current Yield” column. His newest book, The For- ity Unleashed: Smarter Financial Regulation. Before gotten Depression—1921: The Crash That Cured Itself, rejoining Heritage in 2013, Michel was a tenured pro- provides a history of America’s last governmentally fessor at Nicholls State University’s College of Busi- unmedicated economic downturn. He is the author of ness, teaching finance, economics, and statistics. His several other books, including Bernard Baruch: The earlier stint at Heritage was as a tax policy analyst in Adventures of a Wall Street Legend; Money of the Mind; the think tank’s Center for Data Analysis from 2002 Minding Mr. Market; The Trouble With Prosperity; Mr. to 2005. He previously was with the global energy Market Miscalculates; John Adams: Party of One; and company Entergy, where he built a logistic regres- Mr. Speaker! The Life and Times of Thomas B. Reed, the sion model to help predict bankruptcies of commer- Man Who Broke the Filibuster. His financial journal- cial clients. His work allowed Entergy to better moni- ism has appeared in many publications, including the tor monetary losses caused by customers’ delinquent Financial Times and The Wall Street Journal, and he payments. Michel holds a PhD in financial economics has appeared on multiple well-known television news from the University of New Orleans. He received his programs, including 60 Minutes and Jim Lehrer’s bachelor of business administration degree in finance v MONETARY POLICY: A LECTURE SERIES and economics from Loyola University. He currently Ford, Carter, George H. W. Bush, and (during his 2000 resides in Alexandria, Virginia. campaign) George W. Bush, as well as to presidential George Selgin is a senior fellow and director of the candidates Bob Dole and John McCain. He was a Center for Monetary and Financial Alternatives at the member of the Congressional Budget Office’s Panel Cato Institute, and Professor Emeritus of Econom- of Economic Advisers from 1995 to 2001; from 2001 to ics at the University of Georgia. His research covers a 2005 he served as undersecretary of the Treasury for broad range of topics within the field of monetary eco- International Affairs. He has won numerous awards nomics, including monetary history, macroeconomic for his work, including the Bradley Prize, the Adam theory, and the history of monetary thought. He is the Smith Award, the Adolf G. Abramson Award, the author of The Theory of Free Banking; Bank Deregula- George P. Shultz Distinguished Public Service Award, tion and Monetary Order; Less Than Zero: The Case for the Hoagland Prize, the Rhodes Prize, the Alexander a Falling Price Level in a Growing Economy; and, most Hamilton Award, the Treasury Distinguished Service recently, Good Money: Birmingham Button Makers, the Award, and the medal of the Republic of Uruguay. He Royal Mint, and the Beginnings of Modern Coinage, is a fellow of the American Academy of Arts and Sci- 1775–1821. Selgin is one of the founders, along with ences in the Econometric Society, and he formerly Kevin Dowd and Lawrence H. White, of the Modern served as vice president of the American Economic Free Banking School, which draws its inspiration Association. He is the author of several books, includ- from the writings of F. A. Hayek on denationalization ing Getting Off Track