This is will be a short post to extrapolate and expand on a main idea of a post by Scott Sumner comparing the Swedish central bankers to the S. Korean ferry boat captains. Incompetence comes in many forms. One such form is copycat central banking where basic concepts of macro are not quite understood, but policy is applied in a cookie-cutter, one-size fits all situations approach as if to say, “It worked so well for Japan, we should try it.” How I wish they would look at Japan now and say that!
Before I come under fire for being less than charitable toward those with whom I disagree, I’d just like to point out the moral difficulty in justifying explicit inflation targeting vs. the reality of supply shocks and happenings with productivity. It just doesn’t make sense to use it as an all-occasion policy without being prepared to take the consequences of monetary tightening when it is probably the least desirable option from an employment and debt burden perspective, given that we are not an agrarian society and employment is therefore a means of survival for most. And of course, here in the US, we never had the kind of public debate due a topic with such grave consequences before it was adopted, which I think, at the very least is anti-democratic, and none of the Federal Open Market Committee members are above the law. The law should have been changed if the FOMC wished to not honor the employment mandate, an occasion that would have allowed the public debate necessary with the appropriate governing body making the choices.
Pun intended, that is all now water under the bridge, after the Committee just waltzed away from the explicit inflation-targeting economic disaster citing concerns about future inflation, financial stability, and disruptions in markets as reasons for not going back to recuse the victims… um… I mean, trying all sorts of nibbling around the edges of interest rate manipulation before figuring out that it wasn’t going to work as average people faced the financial struggles of their lives. It’s a bit odd that when inflation from the oil price shock was of concern, not one of them was concerned about financial stability or market disruptions – and boy, they sure caused some big disturbances in both with sterilization of discount window loans.
So now, we end up engulfed in discussions about what to do about long term unemployment. Frankly there isn’t much to be done as long as the casino called capitalism is being squelched. There just aren’t enough financial resources to adequately deal with it under those conditions, and I am quite sure we cannot afford to pay more taxes to support dealing with it on the fiscal side. It’s one of those opportunity costs of the current economic/monetary policy regime that doesn’t appear to be heading for retreat any time soon. We have to pay for it one way or pay for it another way – and it seems like the weighing of costs between the two was a bit on the side of shortsighted as the long term unemployed are left in a rather hopeless condition while we refuse to let markets handle the problem.
But then, it probably isn’t entirely fair to the Committee to solely compare its members to the S. Korean ferry boat operators. Because in order to them to have made such a monetary mess that appears to be never-ending and waltz away, it takes the complicity of Congress and the Executive. If they wanted an appropriate fix, they would get it. But that isn’t happening.
The long and short of it is that nobody in government from the President on down gives a darn and the problem will persist until that changes. Sorry that the news isn’t what we’d all like to hear, but it is what it is.