Record High Oil Prices: Two Fed Chairmen, both academician, and the incredible similarities:
Here is the first one, from wikipedia:
Federal Reserve Chairman
Burns served as Fed Chairman from February 1970 until the end of January 1978. He has a reputation of having been overly influenced by political pressure in his monetary policy decisions during his time as Chairman[1] and for supporting the policy, widely accepted in political and economic circles at the time, that Fed action should try to maintain an unemployment rate of around 4 percent.[2] (See also: Phillips curve)
When Vice President Richard Nixon was running for President in 1959-1960, the Fed was undertaking a monetary tightening policy that resulted in a recession in April 1960. In his book Six Crises, Nixon later blamed his defeat in 1960 in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968, Nixon named Burns to the Fed Chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.[1]
Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed.[3][4] Inflation resulted, which Nixon attempted to manage through wage and price controls while the Fed under Burns maintained an expansive monetary policy. After the 1972 election, price controls began to fail and by 1974, the inflation rate was 12.3 percent.[1]
Another factor contributing to inflation under the Burns Fed was the belief among Burns and other Fed Governors that "the country" was not willing to accept rates of unemployment in the range of six percent as a means of quelling inflation.
From the Board of Governors meeting minutes of November 1970, Burns believed that:
...prospects were dim for any easing of the cost-push inflation generated by union demands. However, the Federal Reserve could not do anything about those influences except to impose monetary restraint, and he did not believe the country was willing to accept for any long period an unemployment rate in the area of 6 percent. Therefore, he believed that the Federal Reserve should not take on the responsibility for attempting to accomplish by itself, under its existing powers, a reduction in the rate of inflation to, say, 2 percent... he did not believe that the Federal Reserve should be expected to cope with inflation single-handedly . The only effective answer, in his opinion, lay in some form of incomes policy.[2]
(See Ron Paul/Bernanke exchange on oil prices and inflation this year at youtube)
During Burns' tenure, the consumer price index rose from 6%/year in early 1970 to over 12%/year in late 1974 after the Arab Oil embargo, and eventually falling to under 7%/year from 1976 to the end of his tenure in January, 1978, with an annual average rate of consumer price inflation of approximately 9% during his term. Negative economic events included multiple oil shocks and heavy government deficits arising in part from the Vietnam War and Great Society government programs. The high interest rates set by Paul Volcker with the support of Ronald Reagan were able to mitigate certain policy outcomes derived from the earlier actions of Burns and the FOMC under his leadership. |
