Wall Street, Trade, and the New Economy: Volume II: The Rise of Finance

Between 1980 and 1986, the price of oil dropped by 71 percent. In the same period, inflation fell by 70 percent. Even so, policy continued to reflect the belief that high wages, not high oil prices, were the primary cause of runaway inflation. This was the slow growth / anti-inflation policy of the Federal Reserve. Based on the belief that full employment and high wages cause inflation, official policy came to embrace slower rates of growth that were considered non-inflationary. While overall growth has been slower, the composition of that growth has changed to reflect the growth of finance instead of production, and job growth in services instead of manufacturing. Volume 2 also explains the shift from anti-inflation policy to support for asset bubbles in the stock and housing markets. This asset inflation policy drove the housing bubble, intentionally created by Federal Reserve chair Alan Greenspan, which collapsed in the 2008 financial crisis.