Since my last post about hawkish statements recently made by Mester of the Cleveland Fed, some additional thoughts have come to mind regarding the point that this sort of sentiment cries out a need for reform.
It isn’t because of one bad apple. In all reality there are more than one. And this isn’t really an issue of trying to squash revolutionary thought. Mester’s ideas aren’t revolutionary. They are quite straightforwardly contrary to the economic policy intention of the portion of government that is democratically elected.
These ideas point out that the inflation target is asymmetrical, and are simply wrong compared to the amendment to the Federal Reserve Act by the Full Employment and Balanced Growth Act that added specific legislative mandates that the Fed is to achieve with monetary policy. The Full Employment and Balanced Growth Act that has a broad government scope, encompassing much more of government than the monetary mandates, states that its intention is to focus every department of government on the achievement of positive economic outcomes, puts the responsibility of the development of strategies to achieve those objectives in the Executive branch of government, and requires all governmental agencies to cooperate with those strategies.
But what appears to be happening here, at least in the case of Ms. Mester’s recommendations, is the tail wagging the dog concerning the implication that the government’s efforts on the supply side to increase V will be for not because M will be adjusted compensate, and any legislative changes in order to boost growth will be offset by monetary policy. With this recommendation, it is even worse than normal offset because the Fed has consistently missed its target since the Great Recession began, and she is suggesting that the undershooting should be increased rather than decreased.
Recent governmental efforts to boost growth with supply side reform are clearly visible. The POTUS says that is his reason for living. Yet we have a situation here where the people who develop monetary policy aren’t on the same page. They aren’t even in the same book, having the effect of the CB vetoing economic policy developed by the elected portion of government, dictating its own policy for everyone regardless of the impact on the general welfare or how the electorate votes. Mester simply isn’t listening, and it doesn’t appear that she has considered the impression it leaves.
In order for the POTUS to be successful, the swamp-draining needs to include the Federal Reserve as first point of order – that is the biggest problem. We really need a revised monetary target and a way to prevent the Fed from going off into the weeds and becoming disconnected from the goals and intentions of rest of government. Short of that, all of these efforts will be nothing more than a waste of time.
When it was time for me to buy a new car, I looked at the Chevy Volt. We have hydro-electric power in my area, and it is very cheap. My fuel cost would have cut by about five-eighths. In the end, however, I didn’t buy the electric car.
Instead, I bought a Mazda CX-5 because when I fill up the gas tank, it tells me that I can go about 320 miles before I need a refill. The range on the electric car is about the same. I can go about 300 miles before I need a recharge. But the difference is that when the Mazda needs a refill, I stop at a gas station and can fill up in about 10-15 minutes, then I am good to go again. With the electric car, after you go your 300 miles, you’re basically done for the day because the time required to recharge is several hours.
When I drive cross-country, the trip is about 2500 miles each way. With a gasoline-powered vehicle, it takes about three and half days to complete including stops for basic needs such as for food and sleep. That works out to about 714 miles and 2-3 filling stops per day. With an electric car, because of the extended refueling time, the time to complete the trip is more than doubled. Instead of taking a week and half off work to visit friends and relatives on the opposite side of the country, I would need to take three, making any such plan quite impractical. This calculation doesn’t include the added issue of charging station availability, making it even more of a problem.
With this in mind, electric cars have a huge handicap that seriously detracts from the fuel savings considering that they cost at least $10k more than a comparably equipped gasoline vehicle. After the car is paid off, with the fuel savings merely offsetting the extra cost, the result is having a car that can be used only for daily commuting and nothing else. Even with hydro-electric power availability, the price comparison just doesn’t work out. They are still far too expensive for what you get.