In an earlier post I began examining the meaning of the Federal Reserve mandate(s) while making a point about loss of production capacity during this very long and dragging recovery from the financial crisis in 2008 or what feels like endless recession to the rest of us. I was reading it over and another point about what it might mean came to mind and I thought I’d share it.
Here’s the mandate again:
[The Federal Reserve] shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
I want to focus on the first half of the sentence, which is most often ignored, but it cannot be in order to grasp the context in which the goals are to be understood.
…shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production…
I wonder if this could stand alone and have the same meaning as the goals. I think it could because what Congress is focusing on here is maintaining growth in the credit and monetary aggregates to get balanced economic growth in the long run; I am thinking long run trend growth with the statement in terms of economic measurements being redundant. We don’t want growth of the aggregates to outpace the economy’s ability to produce or we get excess and variable inflation like we had in the 1970’s, but we want as much growth as we can get so management of the aggregates cannot hamper the economy’s long run potential to increase production. And here is where I wander off Bernanke’s inflation-busters reservation by assuming this part of the statute means that real growth in production is the main focus for the Fed because if it kept its focus on this, however it ended up defined, the goals as they are spelled out would not necessarily have to have a lot of thought put toward them except while recalibrating monetary policy as needed.
It is a pro-growth mandate that focuses on the path of growth in the long run. Tight money now has an attached legal requirement for easy money later to put GDP back on trend. The mandate starts with “shall” which leaves the impression that it is not open for negotiation – and it means that turning the United States into Japan is unlawful because it flat-lines the economy’s long run potential to increase production infinitely unless Bernanke plans years of makeup growth. I rather doubt he has such a plan in mind given his hawkish tendencies; and even if he did have such a plan it is likely now impossible to grow like gangbusters to make up all that we have lost in addition to what we could have had if not for Bernanke’s ongoing detour into criminality.
Now let’s just suppose that we agree with Bernanke (most of us don’t, but just play along) that his policy framework is what society needs and we still have the utmost respect for the rule of law and the democratic process. We would need to get the law changed in order to feel right and righteous about implementing it because it is something the elected officials of We the People decided is the best course of action for monetary policy and it is the way we decide together how we want to live. Yes?
When I think about this hypothetical with visions of the tent cities still fresh in recollection, my blood starts to boil and I wonder, sometimes out loud, who the heck Bernanke thinks he is and how we managed to get such a crop of ‘stupid as a box of rocks’ politicians in Congress and as POTUS. This fiscal cliff thing is complete nonsense from the perspective of the Fed’s statutory mandates, and these fools have allowed Bernanke to distract them with it so they don’t start asking questions about his epic fail as Chairman. Whatever happens in the end, I suppose we Americans only have ourselves to blame because we voted for these people who couldn’t pour urine out of a boot with the instructions on the heel.