Wednesday, March 11, 2009

Barone: Ad Hoc Fed, Treasury Acts Caused the Financial Crisis, Not Deregulation, Tax Cuts

If you want to read a very short book on how we got into the financial crisis, I don't think you could do better than John B. Taylor's Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis. Taylor argues persuasively that the Federal Reserve kept interest rates too low for too long in 2002-05 and that "government programs designed to promote home ownership, a worthwhile goal but overdone in retrospect," together with the credit that was plentiful because of unduly low interest rates created the housing bubble.

Taylor's book is a useful antidote to the mantra, spread by some Democrats including Barack Obama, that the crisis is the proximate result of Reagan- and Bush-style deregulation or the Bush tax cuts and other macroeconomic policies. 

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