I know from personal experience as president of the Dallas Fed that GAO auditors are only too eager to support the political agendas of their Congressional sponsors. Past efforts to have ongoing GAO audits have excluded monetary policy and promised financial audits only. The current bill specifically targets monetary policy.

I’ve enjoyed my brief encounters with Mr. Paul. I like him personally, but I can’t get around the fact that his agenda is nothing less than abolishing the Federal Reserve.  Abolishing the Fed is not a hidden agenda on his part. In fact, End the Fed is the title of his latest book.

His book shows that he has given a lot of serious thought to his positions, including his lifelong study and admiration for Austrian economics, which longs for a gold standard. Unfortunately, in my opinion, he also praises the burning of dollar bills by young people at his campaign rallies. In fact, the title of his book, he says, came from the chants of students at a rally while holding up burning dollar bills. (Page 4 of End the Fed.) Burning dollar bills, to me, is almost as repugnant as burning the American flag–certainly not a source of pride.

Frankly, I’m flabbergasted at the attacks on the Fed in Congress. I think the Fed performed well in the financial crisis, pulling us back from the brink. The country and Congress owe it gratitude, not derision. I guess it’s true that no good deed goes unpunished.

It’s an honor to be on this panel with all these distinguished people. But I’m afraid I was invited because I’m considered soft on bailouts. That’s a terrible reputation to have. What is it they say about poker? “If you look around the table and you can’t tell who the sucker is, it’s you.”

The case for bailouts is usually systemic risk. You do it, not for the bailout-ee, but to limit the collateral damage, damage to the whole “system.” The case against bailouts is that by saving management and owners from the consequences of their excessive risk-taking or bad decisions, you create moral hazard and encourage similar behavior by others.

In most of the so-called bailouts during the Panic of 2008—bunched together in September 2008—the decision-makers were not saved or rescued. Top management, directors and stockholders generally lost their jobs and much of their wealth, and were maligned in Congress and by the press.

They didn’t benefit from a “heads I win, tails you lose” proposition. They had won for a while; then they lost.

Future decision makers under similar circumstances will remember both sides of that coin and not want to go there. Public humiliation is not something you want to emulate.

Mr. Paulson, in fact, seemed eager to fire people at the top who had done no wrong specifically so that he could not be accused of creating moral hazard. The CEOs of Fannie and Freddie were following policies mandated by Congress and were not the same CEOs in place during the earlier accounting scandals. I believe the fired CEO of AIG had been on the job only a few months. And Ken Lewis of Bank of America has learned that no good deeds go unpunished.

Moral hazard did get us into this mess. The making and securitizing of subprime mortgage loans and selling those mortgage bonds all over the world was the mother of moral hazards, since mostly independent unregulated mortgage brokers made the credit decisions and unsuspecting owners of the bonds—misled by their AAA ratings—bore the risk.

Many pundits who were saying “let ‘em fail,” “let ‘em fail” later said letting Lehman Brothers fail was the biggest mistake of the crisis. I tend to agree.

There were a lot of tall dominoes, standing close together. I’m not sure the system could have survived many other failures like Lehman’s, which cost me about 40 percent of my little portfolio.

Given time, I’m sure the Treasury’s TARP program could have been better designed and executed, but under the circumstances I think it’s working pretty well for almost 700 banks caught holding mortgage-backed securities and other assets no longer trading. We only hear of the top nine or the top 19.

I won’t try to defend TARP’s use outside the financial system or the way Congress has used it to fan and pander to our worst populist instincts, to demonize bankers, and as a pretext to expand government power, violate contracts and private property rights. It has been shameful.

The public, egged on by politicians, regards TARP as the Government spending their money to support “evil doers.” Most people have no idea that the Treasury will be able to sell its preferred stock and warrants received from banks, likely at a profit.

There will be losses here and there, on individual transactions and banks, but, overall, I won’t be surprised if taxpayers come out ahead net. The Treasury has earned about 18 percent on the banks that left the program early.

The Federal Reserve’s extraordinary lending last year and security purchases this year are even more likely to earn a net profit for taxpayers. The Fed generally turns over about 90 percent of its earnings to the Treasury’s general fund. Those earnings are rising significantly with the expansion of the Fed’s balance sheet, and those earnings will benefit taxpayers. Even the individual losses here and there, to the extent there will be any, would not be a loss of existing money, but only a loss of the new money created by the transaction—an opportunity cost loss.

Skeptics make much of the Fed’s expansion of bank reserves and money and take it for granted that it will be highly inflationary. Possibly, but I doubt it.

New money must be spent before it can cause inflation. Banks are holding most of their new reserves idle as excess reserves because they are scared to death. And the public has similarly reduced the velocity, or turnover, of money sharply. With the velocity of money collapsing, and credit shrinking, rapid money expansion has not been inflationary. So far, rapid money growth has been needed to forestall deflation.

Despite some pick-up lately, both the Consumer Price Index and the Producer Price Index remain below year-ago levels. Prices for the year are down, not up.

The trick for the Fed will be to adjust money growth as velocity returns toward normal—the exit strategy.

Chairman Bernanke’s study of the Depression has convinced him that tightening monetary policy prematurely is a greater danger than tightening too late. Most pundits on financial TV seem to assume the opposite.

During the Depression the Federal Reserve increased reserve requirements on banks to “mop up” banks’ excess reserves. The banks reacted by contracting credit further. It turned out that the reserves were not considered excess by the banks themselves. They wanted an extra cushion against uncertainty.

Today, the pundits are urging the Fed to make the same mistake—to “mop up’ excess bank reserves before they are used for loans and investments that might create inflation. But the banks are holding those excess reserves voluntarily—for the same reasons they did during the depression, as precautionary balances. Just because they may be excess reserves in a regulatory sense doesn’t make them excess in a more real sense.

While I give passing marks to the Treasury’s capital injections into banks and to the Fed’s direct and indirect lending, I put the massive stimulus program on the other end of the spectrum. It reminds me of hunting wild hogs with a shotgun rather than a rifle. There is a lot of firepower, but it’s diffused–not focused enough. It has probably prevented some layoffs at the state and local levels, but at a huge cost in money, deficits, and debt.

The Fed made loans and the Treasury made investments. The stimulus program, however, was old-fashioned spending. Money spent, money gone.

The deficit as a percent of GDP has tripled and outstanding debt is headed above its recent level of about 40 percent of GDP.

Instead of targeted marginal tax-rate cuts to stimulate the private sector, we face the prospects of repeating a huge mistake made during the depression—raising taxes in a weak economy. Not only the expiration of the Bush tax-rate cuts, but also additional taxes to finance new government programs.

In the 1937-38 period during the depression, the government raised taxes to finance new government programs already put in place. They wanted to balance the budget. We face the prospect of new taxes for existing programs and new programs yet to come.

Another negative feature of the Depression that we seem to be copying is class warfare against business leaders. How that is supposed to help anything is a mystery to me. But, to my knowledge, even Roosevelt didn’t think to have a pay czar.

Another depression-era mistake we’re in danger of repeating is protectionism. We haven’t gone as far as the Smoot-Hawley tariff increase yet, but we are on a slippery slope in that direction, with the violation of the NAFTA agreement on Mexican trucks, tariffs on Chinese tires, and buy-American policies spread all over the stimulus bill.

Will we ever learn?

Exports or goods and services increased by $3.7 billion to $132.0 billion while imports increased by $9.3 billion to $168.4 billion. The deficit for September increased from $30.8 billion to $36.5 billion, an increase of 18 percent.

The cause of the deterioration is not obvious. Normally faster growing imports than exports would reflect faster U.S. growth than our trading partners. That isn’t the case with our Asian trading partners, especially China. They have been growing faster.

The answer may lie in capital flows that mirror trade flows and can be the driving force rather than just the passive financing of trade. In other words, the trade deficit may be “financing” an increase in net capital inflows rather than the other way around.

This explanation is consistent with what I’ve suggested before–that more net capital inflows (and thus larger trade deficits) may be necessary to make up for the shortfall of domestic saving in financing domestic investment. With huge increases in government dissaving in the form of larger and larger budget deficits, national saving is shrinking. That means either domestic investment has to fall to match lower saving, or more foreign saving will be necessary to supplement domestic saving.

This explanation is plausible, but nonintuitive. Among  other things, it suggests that we have to have a larger external deficit because of our larger budget deficit. The positive side of that is that a shrinkage of the budget deficit would help on two fronts: it would help finance and sustain domestic investment and would also help reduce the external deficit and accumulation of U.S. debt by our trading partners.

The second paragraph acknowledges this implicitly when it says “Thailand, South Korea, Russia, and the Philippines have been snapping up dollars this week in order to hold down the value of their currencies.” It goes on to say that Brazil’s finance minister said the country’s currency remained too strong even after Brazil adopted some capital controls to weaken it.

While a majority of pundits on financial TV argue for a strong dollar to boost—or should I say “buck up” the U.S. economy, the rest of the world seems to understand that a weaker domestic currency would help them get out of recession, unless, of course, all or most countries do it and cancel each other out. Such confusion is an important reason countries should adapt domestic policies to domestic needs and let their exchange rate adjust to reconcile those with the outside world. 

Yesterday, rumors were going around that China might soon restore the gradual appreciation of its yuan, which implies a weaker dollar relative to the yuan. That would be helpful both to China and the U.S. since the U.S. trade deficit is largely China’s trade surplus. But wasn’t it just the day before yesterday that China was urging the United States to strengthen the dollar, which would imply a weaker yuan. Consistency is difficult to maintain as blog writers will tell you.

I visited China in 2003 and 2006 and made several speeches and gave several TV interviews. I kept making the point that China’s exchange rate was China’s business, but then I pointed out that holding the yuan down was subsidizing U.S. consumers at the expense of their own. The first part of my message was not really correct since every exchange rate has two sides and affects both parties, but I thought it best to be diplomatic about it. During both periods the U.S. was trying to pressure China to appreciate the yuan, and I was convinced that China would do so only if we quit urging them to publicly.

One of the huge mistakes made early in the Great Depression was the severe Smoot-Hawley trade law, which led to competitive devaluations all over the world and triggered a sharp shrinkage in world trade. We haven’t gone that far yet in our Great Recession, but we are on a slippery slope. Exchange rate manipulation can do harm similar to tariffs and non-tariff barriers to trade. Once we start the game of competitive exchange rate changes it can easily get out of control. Instead, let’s follow Milton Friedman’s advice and keep the float clean.

I have always kept track of the U.S./Canadian dollars by comparing the two prices inside new book dust covers. I wrote about this here on October 4, 2007 in a post titled McTeer on Dollars and Books.

Chairman Greenspan’s book, The Age of Turbulence, was released on September 17, 2007, priced at U.S. $35.00 and Canada $43.50. That was a 24 percent difference despite the parity in the exchange markets that month. His publisher obviously didn’t think the parity would hold.

The Prince of Darkness by Robert Novak had come in with a little earlier with a 27 percent difference. Other books I bought around that time had a similar premium on the dollar, the lowest being 21 percent.

With dollar weakness again in the news, I’ve done a bit of empirical research on my recent purchases. A Colossal Failure of Common Sense, The Inside Story of the Collapse of Lehman Brothers by Lawrence G. McDonald and Patrick Robinson is priced at $27.00 U.S. and $33.00 Canadian. That’s a 22 percent premium for the U.S. dollar, in line with two years ago.

In Fed we Trust by David Wessel is priced at $26.99 U.S. and $33.99 Canadian. That’s a 26 percent premium, still in the middle of the range of two years ago. So was Glenn Beck’s, Arguing With Idiots, (a gift) at 23 percent–$29.99 U.S. and $36.99 Canadian.

This Time is Different, Eight Centuries of Financial Folly, by Carmen M. Reinhart & Kenneth S. Rogoff was a gift from my son who was vastly overestimating my scholarship and patience. Speaking of patience, Ken Rogoff and I once spent a week in London one afternoon visiting financial firms there. He was a delightful guy and great company for a professor at a school that doesn’t have a good football team. Anyway the publisher of Ken’s book apparently punted on the exchange rate question. The price was $35.00 U.S. with no Canadian price listed. I’d better not speculate, so that’s all I have to say about that.

Hold on. Stop the presses. I just bought Charles Gasparino’s The Sellout. Same thing: A USA price of $27.99 with no Canadian price.

Do I have to have a conclusion?  What about “The dollar hasn’t really lost any value in the last two years in terms of books, but some publishers are backing away.”

I attended a conference in Beijing in 2003 sponsored by the Chinese government. While in China, I also met with several Chinese officials, including the new Premier, Wen Jiabao, officials of the central bank, and the agency in charge of maintaining the exchange rate of the Yuan, or Renminbi.

In several television interviews I was asked about the dollar/yuan peg and whether it was appropriate. I tiptoed through the tulips on the delicate aspects of that question, focusing instead on the basic dilemma.

The dilemma was that China was pegging its currency to the dollar, which was sinking. While a depreciating dollar might help offset economic weakness in the United States, the sinking yuan tied to it certainly seemed inappropriate for the booming Chinese economy.

Diplomacy became trickier when I was leaving the exchange pegging agency and was asked to sign their guest book. The book was huge and they opened up an entire blank page for me. About all I was sure of was that a large handwriting font was called for. I have (or had) a photograph of that scene that I’ve looked for unsuccessfully for months. It shows exactly what I wrote. The best I can remember, it was something like this:

Now that I’ve guessed at it, I’ll probably find the picture tomorrow.

A highlight of that visit was the audience some of us had with the Premier in the Great Hall of the People. He went around the circle and asked some of us for any advice we had to give him. A distinguished scholar sitting next to me, a Harvard professor I believe, shared his concern about so many single male Chinese coming off the farm into the cities to work without the stability offered by family. He urged the Premier to allow wives to come too lest the husbands succumb to the temptations of the city.

I was called on next. My contribution was that I thought the professor had been watching too many episodes of “Sex in the City.”

On that visit, I reached the conclusion all over again that we don’t want a land war with China. While I was walking up a long stretch of the Great Wall, what seemed like millions of Chinese soldiers in ill-fitting green uniforms were walking down. I felt like a salmon swimming upstream. The soldiers were apparently on holiday. While they did not look menacing, they did look infinite in their numbers. They just kept coming and coming. I thought of what it must have been like during the Korean War when the Chinese poured across the 38^th parallel.

On a lighter note, there were two mysteries I never was able to solve during that trip. One was, when do you use Yuan and when do you use Renminbi for the Chinese currency. I had it explained to me several times, but the explanations were all different. I never got it.

The other, greater, mystery was this: Why did they change the name of the city from Peking to Beijing but didn’t change the Peking duck to Beijing duck?

Either way, they are highly overrated.

Then why is it that virtually all the commentary on the dollar on financial TV and in blogs fails to mention the balance of payments when discussing the dollar? The dollar is considered super-important these days while the balance of payments isn’t considered important enough to mention. That’s like saying the price is important, but supply and demand don’t matter.

Instead, a strong dollar is treated as both the evidence of U.S. economic strength and a major cause of it. A weak dollar reflects and causes economic weakness. This relationship is either taken as self evident or is based on historical periods when the economy and the dollar were strong together or weak together. Unfortunately, these conclusions are the opposite of what economy theory teaches.

Other things equal, a primary result of an exogenous weakening of the dollar is an increase in foreign demand for U.S. exports, since they are now cheaper in terms of foreign currencies. A weaker dollar also makes foreign exports (U.S. imports) more expensive in dollar terms. Therefore, the weaker dollar will stimulate U.S. exports and depress U.S. imports. This increase in net exports (U.S. exports minus imports) adds to total spending as measured by GDP. If GDP is at recession levels, a weaker dollar helps pull us out of recession.

I don’t deny that many other economic variables have an influence on these relationships. However, the relative price change brought about by changes in the exchange rate are considered dominant among economists who study the matter.

The positive jolt to domestic GDP caused by a depreciating home currency is well known all over the world. That is why during a global slump such as we are in today we have to guard against competitive devaluations where each country tries to boost its economy through depreciation or devaluation which has the opposite effect on its trading partners. The term of art is “beggar thy neighbor” policies, sometimes called “beggar my neighbor” policies.

While the competitive advantages of currency depreciation are widely understood around the world, most of the talking heads on financial TV seem to believe that the opposite is true for the United States. They imply that a stronger dollar will lead to a stronger economy and a stronger economy will lead to a stronger dollar.

Apparently forgotten is the pressure U.S. officials put on China in the not-too-distant past to let the yuan appreciate, which would effectively depreciate the dollar against the yuan. I wasn’t in favor of pressuring China on that point, but at least those who did understood that a more expensive yuan and less expensive dollar would help restore more balance to trade between those countries. Today’s proponents of dollar appreciation are pulling in the opposite direction. It is amazing to me that China has completely turned the tables on us by arguing that it is us with the weak currency while touting their own artificially weak currency (roughly pegged to the dollar and protected also by exchange controls) as a potential reserve currency.

I’m changing focus now. Pay attention.

While a weaker currency helps a country pull out of a recession, a strong currency is beneficial if there is no recession, or shortage of aggregate demand. A strong currency relative to those of your trading partners helps consumers by making imported goods and services cheaper in the domestic currency. The added competition from imports also lowers the price of many domestically produced goods and services. A strong currency puts pressure on producers, exporters, and potential exporters to remain competitive, which isn’t always possible. Businesses may fail and jobs may be lost.

A strong currency generally harms producers and exporters. To repeat: a strong currency generally helps consumers and harms producers.

So, how do you choose which group to help?

The answer is you don’t. Under our system of market-determined exchange rates, the rules-of- the-game call for hands off. Keep the float clean, not dirty. Government tinkering with a floating currency opens it up to intense lobbying by pressure groups that is best avoided.

In the quandary of whether to favor consumers or producers, importers or exporters, a couple of points should help. One is no matter what we do for a living, we are all consumers. Even those harmed as producers will be helped as consumers. Another question to ponder is this: Who is an economy for, consumers or producers? I think the answer is consumers. This is similar to the question, do we work to eat or eat to work? Or, do we import to export or do we export to import. I think the unstated consensus in a democracy is we work to eat and we export to import. Consumption is the end; production is the means. A more totalitarian government, like China, is usually tempted toward mercantilism, which includes a higher priority on exports than imports.

So, my conclusion is there is a strong argument to be made for a strong currency. It just doesn’t apply in the midst of a deep recession when the main problem is inadequate aggregate demand. Many people who don’t acknowledge that are, in my opinion, trying to avoid sounding “Keynesian.”

I’ve said this many times before. My position on a strong dollar is similar to St.Augustine’s position on chastity in his famous prayer: “Lord, make me chaste, but not just yet.” My prayer is, “Lord give us a strong dollar, but not just yet.”

The front page of today’s Wall Street Journal features a useful breakdown of the third quarter real GDP statistics. On the negative side, it shows that the strength in consumption spending benefited from various temporary government programs: primarily cash for clunkers and the first time home buyers’ credit. Those will eventually go away.

Showing imports as well as exports is almost a breakthrough since commentators typically focus only on exports as a positive to GDP growth. The chart showed exports as contributing 1.5 percentage points of the total increase of 3.5 percentage points. Fair enough. But it also showed imports subtracting 2.0 percentage points, making net exports (exports minus imports) a net drag of 0.5 percentage points.

It’s important to remember that imports are a subtraction from U.S. GDP numbers because the various categories of spending listed have import components that generate income abroad rather than at home. Imports are subtracted to prevent over counting in those other categories.

A very positive detail is the contribution of inventory investments. Inventories have been drawn down in recent quarters, and I was expecting a boost from some rebuilding of inventories in the third quarter. Instead, the boost came from a slower liquidation of inventories than in the previous quarter rather than a rebuilding. (A smaller minus has the effect of a plus.) The reason this is so positive, in my opinion, is that the rebuilding of inventories and its boost to GDP is still in our future. It will likely boost the fourth quarter GDP number; if not, the first quarter. It’s an ace in the hole.

I find it disconcerting that everyone seems to equate an increase in the GDP number as an end to the recession even though everyone expects employment to continue falling for some time. Falling employment is hardly consistent with a recovery in my book.

One might think me a killjoy for raining on the recovery parade, but I do believe too much positive spin on current numbers sets us up for disappointment in the near future. The stock market, in particular, swings up and down on exaggerated news spin. More realistic interpretation of incoming economic data might help the stock market have a slower, but more sustainable, increase.

But just to be clear: a 3.5 percent increase in the third quarter is a good thing.

Amity showed great restraint in writing her book. A scholar with her expertise could have driven the ideological lessons home and saved those of us on a practical mission some time. Instead, she patiently let the characters and the circumstances speak for themselves letting the nuance show through for us to savor.

While I wasn’t totally clueless about the depression, not having lived through it, you see, I must admit that my knowledge of many of the details was limited.

Here’s what I thought I knew going in:

* There was still debate over whether the October 1929 stock market crash caused it, just preceded it, or how big a role it played.

There was general agreement that:

* The Smoot-Hawley tariff was a terrible mistake that made it much worse, and may have made the difference between recession and depression.

* The Fed made it worse by allowing the money supply to shrink.

* Things got better in the mid-thirties, but then worsened again, probably because of policy mistakes.

* Hoover was totally ineffective and did next to nothing to help, while

* Roosevelt was an activist who experimented with cures and generated public hope and was generally successful.

* The depression really didn’t end until WWII.

* The most important change made to prevent future depressions was the FDIC’s deposit insurance.

* The semi-socialist measures of the Roosevelt administration saved capitalism from something far worse.

Here’s what I thought of a couple of things mentioned above:

* I couldn’t really deny the Friedman and Swartz charge that the Fed erred by allowing the money supply to shrink.

* However, I thought insufficient attention had been paid by the economics community to the following factors:

- The shrinkage of the money supply was primarily a by-product of bank failures.

- The world was still on a gold-standard and policymakers were presumably supposed to follow the “rules” of the gold standard game.

- There was no consensus within the economics community on what to do to get out of a depression.

- This consensus would await the publication of Keynes’ General Theory in 1936 and its subsequent popularization and incorporation into economics textbooks.

Here are some of the things I learned by reading the book:

Much of what Roosevelt did on a large scale was begun or done first on a smaller scale by Hoover. Hoover was not sitting on his hands waiting for better times.

Hoover came off better in the book than I expected. Roosevelt came off badly, as expected, based on his economic policies and actions. What I didn’t expect to learn was that Roosevelt was rather petty and vindictive.

The Smoot-Hawley tariff, arguably Hoover’s biggest mistake (expected), came very early (1930) in the first year of his administration without a lot of thought given to it. Protectionism was apparently accepted Republican dogma at the time; so Hoover accepted it almost routinely. (He would try to improve it; not oppose it.)

Hoover’s “economic philosophy” was really an engineer’s view of the world where planning was useful and where problems can be fixed. He was willing to tamper with the machinery up to a point, but he respected the constitution, including the constitution of the gold standard, as limitations on government action.

Roosevelt, on the other hand, had no philosophy to speak of, he cared little about the constitution, and he broke the gold standard with his prolonged devaluation of the dollar. (I had known about the devaluation of the dollar, of course, but I had missed that it wasn’t an immediate thing. Instead, Roosevelt enjoyed setting the price of golf every morning from his bedroom. Different strokes for different folks.)

Roosevelt’s lack of a “North Star” to guide his way made him particularly vulnerable to being pulled in different directions by his staff and “brain trust.” During his administration, policy shifted back and forth between stimulus measures (job creating) and a desire to get back to fiscal rectitude by balancing the budget with large tax increases.

Large and untimely tax increases in the middle of the depression—probably not considered that way then—killed off an incipient recovery.

This should be a huge lesson for us today. Among other potential tax increases implied by various programs under consideration today, we have the pending reversal of the Bush tax-rate cuts looming next year. Could we possibly repeat that mistake?

As for other lessons, for now, I think Chairman Bernanke was very much influenced by this last factor and has resolved to avoid premature “fiscal rectitude.” He considers declaring victory prematurely a bigger danger than waiting too long.

He has already avoided the mistake of allowing the money supply to shrink and have deflation psychology take hold. His critics on that, however, are getting louder and louder, calling for an “end game” sooner rather than later.

One issue involving monetary policy is very much relevant for today: the excess reserves on banks’ (and the Fed’s) balance sheets. As in the 1930s, the banks have more reserves than the law or regulations require them to have—hence the term “excess” reserves. However, also as in the 1930s, banks have good reason to be cautious and remain even more liquid than the law requires. Attempts to “mop up” those excess reserves before they are used in ways that might contribute to inflation could have disastrous results. The fact that banks are holding them voluntarily is proof enough for me that they are “required” reserves in the minds of the bankers and that banks would try to restore them if they were removed by the Fed prematurely.

One final note:  I didn’t realize that our current mob-rule attitude toward successful people that has us cutting executive pay and hauling executives before congressional committees to be humiliated had a counterpart in the 1930s, but, apparently there is nothing new under the sun. Amity has an entire chapter on “Prosecutions” that amounted to political payback. It’s like our leaders are bent on taking the worst lessons from the past.

I had wondered whether Keynes had had much influence on administration policies during the depression since The General Theory came too late. Even though he had earlier influential books, I gather not. My favorite part of Amity’s book was when she describes a meeting that Keynes had with President Roosevelt on May 28, 1934, lasting fifty-eight minutes, about the time of a class-room lecture. Both Keynes and Roosevelt indicated that the meeting did not go well.

The President indicated that “Keynes had left him, disappointingly, with a ‘rigmarole of figures.’ He must be a mathematician rather than a political economist.”

Don’t you just love “rigmarole of figures?”

P.S. I worry that I have done Amity Shlaes, The Forgotten Man, a disservice by my inadequacy in describing it. Even if I haven’t conveyed its merits sufficiently, trust me, it’s great, and well worth your time.