I enjoy my position as an armchair economist, with my economics state of mind and the boundless possibilities in parsing bits and pieces of information to form theories about human behavior. My position on the outer reaches allows me to throw some of the things I find out there without having it come back later to haunt me, and I can get some good laughs at the same time – or maybe it isn’t so funny after all.
One of the things I have found perplexing is the willingness of many in the economic profession to write off the very serious problems with monetary policy as stupidity or say things they know stretch the bounds of intellectual honesty in order to avoid looking at the real damage that has been inflicted on the economic wellbeing of the United States and the people thereof and follow it back to its root cause. Whatever the argument is, like QE won’t help, we can’t risk letting the inflation gene out of the bottle, the Fed is pushing on a string or the infamous liquidity trap, all of these (and more) lead back to bungling and blunders on the part of the FOMC and perhaps Bernanke in particular. Getting to the ZLB with the demand for money and safe assets rising rapidly, outpacing supply by quite a lot is a policy failure in itself.
In addition, assuming stupidity rather than the possibility of being in a state that policymakers want can lead us into the delusion that if we offer an appropriate solution over and over, enough to convince policymakers of the mistakes they are making something will eventually change. I am not saying that the assumption of stupidity and that the FOMC members actually believe the Pollyanna statements they release isn’t credible. I am saying it is doubtful that someone like Ben Bernanke is inattentive enough that he can’t tell whether money is tight or easy and I suspect he understands that what he says in public regarding the stance of monetary policy isn’t accurate. I think there are other explanations for the situation that I haven’t seen talked about but they can become a little clearer when we take a look at the kinds of things the Fed has been devoting research resources toward. Money does the talking.
Charles Evans seems like he’s sort of a rational human being, going out on a limb, going against the inflation fear mongering, and publicly advocating a Sumnerian approach to monetary policy. But in taking a look at the research going on at the Chicago Fed, we can see just how serious he is in attaining it. There is not one paper about NGDPLT, price level targeting or anything close. Where’s the beef? Thank you, Mr. Evans, for climbing out on that limb, but will you please put your money where your mouth is?
So that’s just a regional Fed, what about the really big tuna in Washington, D.C.? Well, if we like to talk about income inequality, the failure of the banking system in 2008 in a technical sense, global warming, and how Bernanke’s approach to monetary policy during the crisis followed Milton Friedman’s playbook almost to a “T” (a bunch of baloney), the Fed is making great use of its research resources. But what about the question everyone is asking, how to get back to managing the long run growth of monetary and credit aggregates commensurate with the economy’s long run potential to increase production so as to promote full employment, price stability and moderate long term interest rates? It’s nearly the same story with other regional Fed establishments – a boatload of excuse making and themes from the left, but sad and deafening silence on the legal obligations of the Federal Reserve and how to best meet them. It seems rather ridiculous that we can have the most serious failure of monetary policy in 75 years and no Fed economist anywhere is willing to write a paper on it. Why can’t we at least have a post-mortem to deny or confirm that statements about inflation targeting match reality – that establishing a firm inflation target will cause the full employment mandate and economic stability to be automatically attained?
I can’t imagine that every single economist throughout the Federal Reserve System is daft, drunk, or otherwise intellectually incapacitated enough to not have a clue about how we got to the ZLB, what to do about it, or that inflation targeting isn’t delivering the goods. It’s the elephant in the room while resources are being wasted on supply side issues like global warming, housing and income inequality.
The global warming topic could be of some concern, although I can only speculate about what its importance to monetary policy might be. It helps to look through the economics section of Amazon.com where books can be found that describe how we can have prosperity without growth, and we should want that because infinite economic growth depletes natural resources at an unsustainable pace while encouraging earth overpopulation. This theme is certainly not lost on BIS. There is quite an obsession with the dynamic between resource utilization and growth in the costs and risks to monetary stimulus section of its annual report. Is Bernanke a climate change and population explosion freak enough to be unethical along the bounds of criminality? It’s a good question. Perhaps someone should ask him about the basis and to what extent of international cooperation the Fed is currently engaged and whether he agrees with the philosophy behind it.