It’s been a little while since I’ve had much time to for blogging, and perhaps it’s partly a focus issue. Work takes a lot of my mental fortitude and there isn’t much left of my brain power by the end of the day. And it’s not so much that the work is difficult, it’s the assortment of personalities involved that can be challenging. Though I hate cutting corners, hope you’ll forgive me if my ramblings are a little short on research.
As reported by Marcus Nunes, Yellen testified before Congress for the last couple of days. I watched her testimony in the Senate out of the CSPAN video library and I was not necessarily surprised that she spun Senator Shelby’s question about the usefulness of rules for monetary policy into being about the Taylor Rule. If the question had been about the Taylor Rule specifically, I would have to agree with her, no rules is likely the better state.
I believe Scott Sumner has some posts about how a Taylor Rule might have fared in late 2008, and I think it would have had the same results, though might have been better in the aftermath than the tight money that persisted for years.
But the specifics about a Taylor Rule really is beside the point. Over the years some of the posts I’ve written in my most exasperated moments over monetary policy have generally included the rhetorical phrase, “Who in the hell do these people think they are?” Yellen just doesn’t get that the FOMC’s days of being able to reorganize itself into public enemy number one and get away with it by spinning and dodging questions are numbered. It’s the Bernanke Fed’s gift to mankind – to abuse power as to make monetary conditions so persistently deplorable the politicians can’t ignore them anymore.
And there is a huge counter factual to her claim that accountability makes things worse in a crisis than they might otherwise be. Australia has had accountability for the nominal target built into the mandates for their central bank and, gee, Australians, for the most part of the Great Recession, were saying, “Recession? What recession?” Funny how rules work when the common knowledge is that heads will roll at the central bank if the job isn’t done.
So if Ms. Yellen chooses to not participate (and I am really surprised that someone who sat in the room full of hawks in October 2008 and agreed to not lower interest rates, and then witnessed the resulting mayhem for that mistake would be so entirely counterproductive) then the FRAT Act is the wrong way to go. No picky-choosey for the FOMC that allows them to lowball growth expectations to be blamed on exogenous factors, setting the bar so low that failure is impossible while average people suffer for it, which the FRAT Act does NOT prevent.
The simplest thing for the politicians to do without doing greater harm would be to amend the Full Employment and Balanced Growth Act with Fed accountability to the mandates (all of them) and some changes in the punctuation to prevent out of context interpretation. It’s not the first best choice, but it would go much farther in preventing hard core inflation targeters from spinning the mandates to mean only one thing – they get to implement the “cruel mandate” – than having done nothing. Headline unemployment spikes to 10% plus and sticks there, the whole lot of the Board has to pack their personal effects and be escorted to the parking lot. I would even venture a guess that we’d suddenly see a lot more believers in monetary offset on the FOMC, and a lot more of those who don’t like the idea of targeting headline inflation. It just takes an incentive to give a hoot, which right now is sorely lacking (you know, big government types don’t hang around with THOSE people).
And about my post on Noah Smith… It’s wasn’t at all insincere. But the point really was that too much of intra-profession bickering is mostly personal or about personal preference over which contradictions should linger to make peoples’ lives miserable. From my point of view, there are some clear choices to be made on the part of Mr. Smith because he can’t glibly eat his Keynesian cake while monetary offset adds more pain to injury on average people. It’s a stark choice that, when confronted with it, many on that side of the economic spectrum take to personal jabs to detract from the fact that not making a choice is actually making one. And isn’t helpful toward leaving the world a better much better place.
The last matter I feel needs some attention is the one regarding the things I said about Scott Sumner regarding his commenter Ray. I actually think Ray is more hooligan than me, and certainly much less graceful. I have no trouble at all picturing him working at a car wash. I hereby and officially extend my apology. Ray=MF=Troll.