Date of Award

Spring 2014

Degree Name

Bachelor of Arts

Major

Economics and Public Policy

First Advisor

Professor William Butos

Second Advisor

Professor Adrienne Fulco

Abstract

By analyzing the balance of power between key policymakers involved in restoring the economy back to health during two periods in history – the Nixon administration and the 2008 financial crisis –, my thesis reveals the detrimental effects the political business cycle has on the success of recovery. In the Nixon era, the evidence supports the notion that Nixon coerced Burns into lowering interest rates past Burns’ threshold, which exacerbated inflation and sent the economy into the dismal state of stagflation. Contrary to the popularly held belief that the Fed acts as an arm of the Treasury, Bernanke held his own in discussions with Paulson. They worked together cooperatively during the 2008 crisis to bail out the failing banks and saved the financial system from severe systemic risk. The hindrance to recovery during the 2008 crisis, instead, stemmed from disagreement in the legislative branch. Since taxpayer-funded bailouts were unpopular with voters, political gridlock delayed Congress’ authorization of critical bailout funds to the Treasury. Other themes include: 1) conflict of duty versus friendship and 2) expansion of the Fed’s powers.

Comments

Senior thesis completed at Trinity College for the degree of Bachelor of Arts in Economics and Bachelor of Arts in Public Policy & Law.

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