In the midst of his probably two greatest posts ever (here and here), stuffed with what appears to me to be the most profound information of our time on QTM and non-inflationary growth, framing effects detract from the usefulness of the content when contrasted with bombastic mannerisms of those purveying macro disinformation, either knowingly or unknowingly (intent does not matter the effect is still the same).
Consider for a moment an episode in recent past of spiking and persistent unemployment and the mass heartbreak concerning lifetimes of the fruits of labor as a deflationary vortex opened up in the middle of our world vacuuming out not only wealth, but our identities and spirit as well. Now juxtapose that episode to framing of the cause of the deflationary vortex responsible for the heartbreak in the opposite… if you want to create inflation, this is where it comes from and this is how you do it.
Now I might be wrong. Perhaps someone, or everyone, who isn’t paying attention and isn’t intellectually tainted by inflation uproar might understand this information as an escape from the greatest monetary tragedy of modernity. Though, I certainly have my doubts that is the case.
Also consider that the people at the Fed running monetary policy are supposedly the top macro economists in the nation, if not the world. Janet Yellen just got away with a corruption cover-up and basically telling the House to stuff their subpoena where the sun doesn’t shine. Yellen has no reason and no motivation to do anything differently.
The short of it is that everything happening right now at the Fed is entirely political; and of course politics has much different motivations and desired ends than markets and average people. And if the aim is to make the world a better and more prosperous place, the path leading to Rome is not through Yellen, Fischer, or any of the other sycophants on the Fed Board who appear to check a lifetime of macro education at marbled doors as soon as the oath is sworn.
It’s true that I’ve come under fire for my tactics. And I admit that I’ve knowingly crossed the line of civility on occasion. But just consider the phenomenon of Donald Trump, and maybe other examples of how the anti-inflation crowd does its work. There simply isn’t any doubt about whether that message has been heard. And so, even if I’ve had to fall on my own sword, if I’ve influenced the thinking of even just one individual, planted any seed of doubt about their priors, if it has helped prevent another monetary tragedy in even the slightest, it has been worth whatever it is that my more tactful but much less effective comrades might have to say in judgement of me. Nobody, but nobody has an understanding of the issues we face who hasn’t been personally confronted with it.
Still, though, if one does not have a taste for my brand of politics that does not mean one should not find a way to say what needs to be said, directly, clearly and succinctly, in a way that lets readers draw their own characterizations of the current conduct of policy and of the people conducting it. One does not have to agree that the institution is insular and its personnel aloof, at best, to have the effect of motivating average people to phone their congressional reps and their senators to apply the political pressure needed to get much better monetary policy and turn this lost ship of the US economy around. They haven’t done that because they do not know the cause of the deflationary vortex.
Shelby backed down from his Fed reform bill because he had no support. Push has come to shove and the Fed won this round. They will keep winning until there is much more demand to do something, even enforcing current law.
So here is the law – excerpts of the Full Employment and Balanced Growth Act that included amendments to the Federal Reserve Act:
An Act to translate into practical reality the right of all Americans who are able, willing, and seeking to work to full opportunity for useful paid employment at fair rates of compensation. To assert the responsibility of the Federal Government to use all practicable programs and policies to promote full employment, production, and real income, balanced growth, adequate productivity growth, proper attention to national priorities, and reasonable price stability.
It gives the obligation to the President to “set the explicit short-term and medium-term economic goals…” to achieve a better integration of general and structural economic policies and to improve coordination of economic policymaking within the Federal Government.
In support of these goals the Fed:
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.
After reading this, it does not seem to me to be necessary to explain to the Fed why growth is not inflationary because the current translation of “growth is inflationary” into the extralegal framework of the Fed’s interpretation of price stability means that if the Fed is responsible for controlling inflation, it is responsible for capping and controlling growth, in contravention of not only the spirit of the law, but the direct meaning of it. And doing so does not help remedy the situation.
Consider the opposite of the purpose of the law: To translate into practical reality the necessity of price stability to be prioritized above the necessity of employment for average people. And then imagine the uproar of a politician stating that some people simply can’t be expected to have employment for the greater good. The reaction would be ruthless.
It simply wouldn’t happen that way. But they do it and say it every day. It wouldn’t be far from constructive if that were called out – make them fear to say such things like the Fed’s top priority is to control inflation or even be associated with supporting the notion. Or rather, a more tactful way of putting this is: make it politically profitable for the wrong people to do the right thing.
That is how to change this current sorry state. Nothing else will.