In reality, with few exceptions over nine decades, the governors all come from the same club--banking and finance, with a sprinkling of academic economists who share the same values and operating assumptions. When staff economists graduate from the Fed, they go on to very lucrative careers in the same fields. I am not questioning personal integrity or intelligence, but the insularity that allows them to evade the deeper implications of their work. They argue endlessly over what the numbers mean, but remain elegantly oblivious to brutal class conflicts inherent in their decisions. They vigorously espouse competing theories but do not in fact regard every element of economic life as equal in status. When farmers or homeowners tap out on their debts, they forfeit homes or farms and the Fed regards their liquidation as a natural event of market economics. When major banks and brokerages face the same fate, the Fed comes to their rescue, in the name of defending "the soundness of the system."

The technocrats at the Fed, we are told, essentially have one principal function--setting interest rates to keep the economy running on an even keel (Woodward tracks this decision-making process closely across more than a decade). By limiting or expanding the availability of credit, raising or reducing short-term interest rates, the Fed attempts to curb price inflation or perhaps to stimulate sagging economic activity and avert recession. Not too hot and not too cold, but just right. The Goldilocks economy was the basis for Greenspan's central accomplishment--the unprecedented length of the current business cycle, now in its tenth year. Trouble is, the conventional view of monetary policy leaves out the hard parts--the many contentious issues that authorities consider too complicated (and explosive) for frank public discussion. For one thing, institutional lore mystifies the Fed's central role in inducing recessions, intentionally or otherwise, for justifiable reasons or for wrong reasons. Every US recession, since World War II and before, has been caused directly by the restraining force of tight monetary policy--the Fed pushes short-term interest rates above long-term rates (an unnatural condition known as the inverted yield curve) and holds them there until the real economy of producers and consumers is driven into a contraction. The justification is always the need to brake price inflation and defend the currency's value.

But sometimes the recession is induced by mistake. That was the case in the one Fed-generated recession that has occurred on Greenspan's watch, in 1990-91. The chairman's private expectation (well documented in Woodward's account) was to slow the economy but not sink it, a so-called soft landing. But he overdid it, held tight too long and produced a relatively brief but nasty contraction. Greenspan never acknowledged his momentous error. The causality and the blame are strangely unmentioned in Woodward's storytelling.

The mistake has special relevance for the present moment because, despite the absence of inflationary pressures, Greenspan launched another vigorous campaign of interest-rate increases in 1999 and continued them into this year (the economy was growing too fast--dangerously so--we were warned). The yield curve became inverted once again last summer, and that ominous condition continues today, like a flashing warning light. It means the Fed is still actively suppressing economic activity, even though the economy is rapidly losing strength. The chairman, in my judgment, ought to be cutting interest rates right now--and aggressively--if he wishes to avert another hard landing, that is, full-blown recession. I am not alone. According to an unnamed source of mine, Wall Street influentials are peppering the chairman with the same message. "It looks ugly," he confided.

As my source suggests, the real context of monetary policy involves a rich, continuous, seldom-visible interplay of politics--coming not so much from politicians but from sectors of business and finance contending to influence the Fed policies and discreetly "lobby" the governors (an unseemly term that is never used). I want to be clear about this: There's no conspiracy involved; the Fed is simply surrounded by the normal, inevitable exertions of political interests--politics in the generic meaning. Contrary to the mythical image, the Federal Reserve is inescapably a political institution, deeply conservative by nature but above predictable partisan ties (as Woodward vividly illustrates). The Fed does deep politics, whether people can see it or not, because its governors must regularly choose among competing interests in the society, deciding which bad outcome has to be avoided at the risk of inviting another bad outcome somewhere else in the economy. Some citizens and interests will be directly injured by the Fed's interest-rate choices; others expect to benefit from them. Fiendishly complicated trade-offs are always embedded in monetary-policy decisions and, I note respectfully, pose an extraordinary burden for the decision makers.

Yet most Americans don't have a clue--even though roughly half of them are net financial debtors and their interests are vitally affected by the Fed. The conflicting fortunes that underlie monetary policy are purposefully obscured by the institution--never discussed very directly even among the officers and never acknowledged in ways that ordinary citizens might understand. But the policy contests are well understood by the elites who engage in them. Woodward, like most commentators, starts from the assumption that everyone shares roughly the same stake in "sound" monetary policy, and he affirms that the public is wise to trust in Father Greenspan. The opacity is one reason the dissident claque, myself included, persists unfashionably in assailing the Fed. Sequestering this great power in an unaccountable governing agency subverts democracy itself by treating citizens as children.

During the past twenty years, the Federal Reserve has utterly dominated the national government--no meaningful opposition exists to its conservative supervision--and the sorry consequences for politics were on display in Election 2000. Neither major-party candidate dared to question any aspect of Father Greenspan's wise reign, nor could they admit that it is Greenspan who rules over the US economy, regardless of who winds up as President. Albert Gore's campaign was particularly handicapped by the silence. As a Democrat, he had to rally a base of voters who had not actually prospered very much during the nineties. This might explain why Gore was reluctant to brag about the boom--his own principal constituencies were the losers. He comforted them with a few lame swipes at the "powerful"--though not a peep at the much-admired father.

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