They say that imitation is the sincerest form of flattery. And while of course I could never really come close to a passable imitation of either Sumner or Glasner, I’ll try my best by taking a stab at Mr. Cohen’s piece in the recent piece in the NYT.
Some might be thinking that Mr. Cohen has gotten enough criticism to last a life time by the people who matter, and my weighing in would only add insult to injury. In my opinion, however, for someone advocating tighter money when, as I demonstrated in this post, indications are that money is already tight, added insult is warranted, and especially so because the piece is absolutely horrid.
From the top, Mr. Cohen starts out:
THE financial markets and the Federal Reserve Board have been playing out a tragicomedy in three acts. Here’s how it works: Initially, a flurry of news stories appear about how, a few months hence, the Fed intends to raise short-term interest rates for the first time in years. Second, the predictable market swoon, as Wall Street traders ponder the fact that the morphine drip of free money that they have been enjoying since the aftermath of the 2008 financial crisis might be pulled out of their arms. Finally, the Fed backs away from its much-overdue policy change, causing traders to rejoice and the artificially stimulated bull market in both stocks and bonds to continue. The curtain comes down, and the audience roars its approval.
A similar drama occurred in the spring of 2013, during what has been called the Taper Tantrum. And now it’s happening again.
Some background: At the end of 2008, the Fed dropped its benchmark short-term interest rate to around zero. It also began a program with the Orwellian name of quantitative easing — buying huge sums of bonds to suppress long-term interest rates and stimulate lending and spending. Thanks to Q.E., the cost of borrowing money was pushed to next to nothing. This was a bonanza for those who make money from money — hedge-fund managers, private-equity moguls, banks — and a disaster for savers, retirees and anyone on a fixed income. (Have you checked the interest your bank pays you on your savings account? Mine: .06 percent per year.)
Mr. Cohen seems fixated on recent market “tantrums” and tries to blend them in with his narrative to make it sound convincing. But he doesn’t mention any of the market “tantrums” that occurred at any time in 2008 or why those occurred when the Fed held rates steady at 2%. He also neglects to mention that even though the FF rate was dropped to zero (not quite) in late autumn of 2008 that markets continued to crash until March of 2009. So much for the low interest rates equals free money theory. Just maybe a 0.25 FF rate was still too high. But how would he know?
Nothing in this article demonstrates that Mr. Cohen understands anything about Wicksellian equilibrium, which in reality, is what his beef is really about, not the Fed’s actions now or in the future. And you know, life is really darned hard sometimes. There wasn’t anyone who wasn’t affected by the financial crisis in some way, and some got the worst of all possible hands dealt to them that they had to survive through while the Fed tried to master the art of QE to keep the rest from being wiped completely out. But Mr. Cohen doesn’t even mention the impact of the alternative scenario on all the supposed victims he mentions where the Fed simply left the FF rate at 2% in late 2008 and did nothing more. I don’t suppose they would have been happy with the return on FDIC insurance (and yes, I am implying that they would have been wiped out too.)
I don’t really like to be in the position of defending the Fed. It made plenty of serious mistakes and keeps making them. But the incessant ignorant and dogma-drenched whining of the tight-money statists is getting rather tiresome when there are plenty of other victims of Fed policy on the planet that had and still have a go of it much worse than they. Perhaps Mr. Cohen should try walking a few miles in their moccasins to get a full appreciation of what he has left.