From the very beginning of "Limitless," the New York Times's Jeanna Smialek is out to convince you that one ignores the Federal Reserve at their peril. With the energy of a conspiracy theorist, and the nuance of a conspiracy debunker, she succeeds with flying colors.
"While it often strikes modern audiences as arcane, the nation's monetary system was a topic of popular discussion and discontent heading into the twentieth century," she writes, barely concealing her sense of nostalgia.
Smialek covers in illuminating detail the Fed's largely successful efforts to save the world in 2020. (Yes, the world; hear her out!) And this sets the stage nicely for her framing of the many crises — economic, identity, etc. — that the Fed still faces today. Before that, however, she regales the reader with the history of the central bank as told through its various crises; the Fed, after all, was founded in the aftermath of the Panic of 1907.
The book's historical first act is useful for many reasons, but two stand out. First, it familiarizes the reader with what is an historic institution. As Smialek writes of the Fed, "its story and America's are compellingly intertwined." She also manages to pull this off in a way that's interesting to the reader no matter the level of previous Fed expertise.
Whether you're a total "Fedhead" or, like Mark Wahlberg's character in "The Other Guys," you think the Federal Reserve is a government prison, you'll be certain to learn a lot.
Secondly, it couches current Fed discourse within a historical perspective. Smialek's history of the institution's many episodes of responding (if not contributing to) crises juxtaposes two Fed truths. One, the Fed couldn't rule the world even if it wanted to; it's a policy error factory. Two, the Fed is responsible for substantial forward progress as a nation (and planet) due to its management of the many types of crises it has faced.
As Smialek writes, the legacy of the financial crisis in 2008 and the Fed's firefighting was a legacy of activism. With the politics of that rescue still fresh in the public's mind, the COVID-19 crisis came along to shut down not just the financial system, but the whole economy. This time, in addition to its 2008 playbook, the Fed was committed to incorporating the critiques of its 2008 response: It would very visibly target its firehoses directly at Main Street.
Smialek characterizes the Fed's interventions as an insurance policy for Wall Street — a characterization that fits neatly within the Fed's legal authorities and mandate. This is also largely how the Fed has viewed its role: It insures Wall Street, and Wall Street moves the risks of Main Street.
However, the aftermath of 2008 made it clear that this is not a compelling story to the American people. Nor is it a perfect mechanism: Wall Street can't be expected to operate with the public policy motivations of the Fed. During the pandemic, the Fed — still well past its operational limits, and thus reliant on Wall Street to effect its interventions — was going to make clear that it is, instead, a reinsurance policy for Main Street.
The 2020 rebirth of the 2008 Fed playbook for Wall Street was a clear success. As Smialek details, prior to the creation of the Fed, money markets could strain to the point of breaking simply as a result of the nation's regular agricultural harvests stretching the nation's liquidity. Yet, she was also able to write without hyperbole that, despite 2020's global pandemic and mass economic disruption, the crisis in money markets "seemed like nothing more than a distant memory to most people, a forgotten footnote in the pandemic fugue." That's progress.
Yet, the modern Fed's role in the eyes of many of its overseers and constituents has shifted from simply accommodating the seasons to actively affecting them. The final chapters discuss the Fed's many challenges ahead as it finds its place in the policy worlds of racial equity, labor policy and technological advancement.
While the structure of the nation's monetary system may have become arcane, the Fed's front-burner issues remain as hot button as the gold standard used to be. And this, Smialek illustrates, leaves the Fed a key player in America's future.
However, even with the historical context, it's clear the Fed is at an especially unique juncture with respect to facing its institutional limits. Due to its central role in the response efforts to back-to-back economic crises, its own ever-expanding communications efforts with Main Street (detailed nicely by Smialek), and its widening net of research and data inputs, the Fed has a larger constituency than ever.
This is also leaving the Fed in an awkward position politically: Its congressional overseers often divide themselves between those who think the Fed doesn't do enough to flex its authorities for the average American and those who think the Fed is mission creeping well past a narrow legal mandate for monetary stability.
Before 2022, the advantage seemed to lay squarely with the former camp. Yes, the leader of the latter camp, former Republican Sen. Pat Toomey, was sparring with the regional Fed banks, accusing them of straying from their narrow public duty by researching the economic effects of things like racial equity and climate change. But it also seemed clear that this was where the most marginal benefit of Fed research would be.
Inflation had been slain in the 1980s and the toolkit for recessionary monetary policy had generally been worked out. Was there really much to be gained from another Fed researcher working on further fine-tuning some textbook monetary policy model? Compared to the catastrophic stakes of climate change? Or the very real labor market gains that occurred — absent inflation — pre-pandemic when the Fed began thinking more critically about racial disparities in the economy?
And yet, of course, "Limitless" ends in the present day with inflation back with a persistent vengeance. Thus, the above balance remains as tenuous as ever.
While the Fed's modern policy portfolio is arguably more challenging and complicated than at any point in its history, "Limitless"'s storytelling arc also allows the reader to see how far the Fed has come — and what a privilege it is that these are the central banking issues of the day.
