By Richard Alford, a former economist at the New York Fed. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side.
“..there is always a well-known solution to every human problem — neat, plausible, and wrong.” H L Mencken
One Tool One Target
US Policymakers and elected officials are again debating the most appropriate policy mandate for the Fed. The two principle contenders are the dual mandate (inflation and unemployment) and the inflation-only mandate. The proponents of these two mandates present them as “optimal” or at least superior to any alternatives. However, the inflation of the late 1970s and the economic and financial dislocations that followed the recent asset price bubbles demonstrate that policy driven by Phillips Curve considerations alone can contribute to less-than-satisfactory outcomes. Nonetheless, economists and policymakers appear to be unable to divorce themselves from the Phillips curve mentality, which posits that there is a tradeoff between inflation and unemployment.
During the oil shocks of the 1970s, the Fed attempted to insulate the real economy and the labor market from the repeated OPEC-induced negative supply shocks. This effort resulted in a serious acceleration in the rate of inflation and behaviors of inflation and unemployment that were inconsistent with the Phillips Curve hypothesis. The return path to price stability ran through a costly double-dip recession.
The experience of the 1970s ended the use of the Phillips Curve as a guide to policy. The “natural rate of unemployment hypothesis” replaced the Phillips Curve in economists’ tool kits. The natural rate hypothesis posits that while macroeconomic policy could have short-run effects (via transitory inflation-augmented Phillips Curves) in the long run the unemployment rate would return to its natural rate (no long-run trade-off between inflation and unemployment). Any short-run effects on output and employment are viewed as the result of the deviation of actual inflation from expected inflation.
Post-1996, especially post-2001, this recast Phillips Curve/Taylor Rule mentality failed to deliver sustainable growth. The underlying problem was in part an external positive supply shock. Globalization and the inability of the Dollar to adjust contributed downward pressure on US price indices. At the same time, externally produced goods replaced domestically manufactured goods here and abroad. This was reflected in a widening US trade deficit and downward pressure on US employment, prices and output.
The Fed, adhering to its chosen variant of the Taylor Rule, eased policy in response to both the-inflation and output shortfalls relative to target. Policy stimulated debt-financed consumption and real estate investment booms. Debt grew relative to income. Low costs of carry encouraged financial institutions to grow their balance sheets relative to their capital as they increased the size of their maturity mismatches. Despite the growth of debt, leverage, maturity mismatches and asset prices out of line with historical experience, financial stability considerations and the unsustainable external imbalance were dismissed as inflation and output/employment remained below target.
However, no steps were taken to address the external imbalance. Instead, policy masked the effects of the external deficit and the inability of the Dollar to adjust via the unsustainable asset price bubbles, which in turn led to unsustainable patterns of investment and consumption. When the unsustainable asset price rolled over, the US economy experienced the worst recession since the Great Depression, and a total collapse of the financial system was narrowly avoided. The external imbalances, however, are a larger problem than they were 10 years ago.
Numerous economists and policymakers outside of the US policy circles view the continued US attachment to the one-tool one policy target as anachronistic. At a recent IMF-sponsored conference entitled “Macro and Growth Policies in the Wake of the Crisis”, Olivier Blanchard, Director of Research at the IMF, described the pre crisis consensus that was held by economists and policymakers as the belief that monetary policy should use one tool (the policy rate or policy rule ) to pursue one target (price stability.) Post the crisis, Blanchard sees recognition of the fact that the policy problem is one of numerous targets (e.g. price stability, full employment, financial stability) and multiple tools (monetary policy, financial regulation, fiscal policy, capital controls). In short, Blanchard sees economic policy as more complex and messy than the pre-crisis consensus (see here and here for additional commentary on the conference)
Nonetheless, US policymakers and many economists continue to adhere to the one tool-one target approach. Despite the fact the Inflation-only target and the Taylor Rule constructs are ill-suited as guides to monetary policy not only in the face of supply and external shocks, but also due to the complexity of the interplay among the various policy tools and policy targets.
The continued attachment is not surprising. A new policy consensus is yet to emerge and specialization and the division of labor are at the heart of economics. However, Adam Smith acknowledged limits to specialization/division of labor even as he touted the potential benefit of specialization, e.g. the pin factory. He wrote: “…the extent of this division must always be limited…by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour…for such parts of the produce of other men’s labour as he has occasion for.” In short, it doesn’t pay for an economic agent to specialize unless some other agent or agents produce and are willing to exchange their surplus output.
Translated to the current policy context, it may be counterproductive for the Fed to single-mindedly pursue price stability given the absence of other policies that can effectively insure financial stability, external balance, etc., thereby insuring full employment and stable growth.
Adam Smith’s observation has a parallel in the literature of general equilibrium and theoretical welfare economics. It is known as the theory of the second best. This theory is concerned with the implications of having at least one optimality condition which cannot be met. The principle conclusion is that when at least one optimality condition cannot be satisfied, it is possible that the best achievable solution involves other variables/conditions taking on values other than those that would be optimal in a perfect world.
Placed in a macroeconomic setting, this suggests that the monetary policy that would be optimal in a perfect world may be inappropriate given the current moral hazard incentives, the inability of the exchange rate to adjust to maintain external balance, too-big-to-fail-financial institutions, the failure of financial regulation, etc. This is especially true given the ample evidence that expansionary monetary policy operates by increasing the risk profiles of financial institutions and the fragility of the financial system.
The idea that the optimal macroeconomic policy will be in part determined by the presence of market and organizational failures has also been noted in the literature. One of Jan Tinbergen’s (co-winner of the first Nobel Prize in economics) major contributions was to show that a government with several economic targets — e.g., the unemployment rate, the inflation rate, fiscal balance, financial stability and external balance — must have at least as many effective policy instruments to be assured of hitting all the targets.
There is a corollary: if the number of tools is less than the number of targets, policymakers will be faced with policy trade-offs. The corollary does not imply that a central bank or other policy maker cannot pursue one goal despite obvious deterioration of performance vis-à-vis other goals. The Fed did just that. However, It implies that society might have been better off with a larger miss relative to the inflation and output targets in 2001-2006, but with sustainable growth, a more robust financial system and a smaller external deficit. This begs the question:
How does the number of policy targets compare to the number of effective policy tools in the US today?
Policy targets (a partial list):
Price stability
• Full employment
• Financial stability
• Fiscal balance
• External balance
• Stable growth
Policy tools
Effective:
• Monetary policy (short-term interest rate or quantity of reserves), but perhaps not at the zero bound
Ineffective to Nonexistent:
• Fiscal policy — Are expenditure and tax policy (the tax code) effective policy tools? Are they designed and executed with policy goals in mind or are they the outcome of a problematic political sausage factory with only a passing resemblance to the policy goals cited above.
• Regulatory Policy The prior regime was ineffective and the new regime isn’t qualitatively different. The new regime is also the product of domestic and international sausage factory.
• Exchange Rate policy-Capital controls Nonexistent
• Trade policy-Nonexistent
The number of policy goals exceeds the number of effective policy tools. Given that significant misses of any of the policy targets listed above are inconsistent with the ultimate policy goals-(stable growth with full employment), the Tinbergen perspective implies that policy trade-offs should be expected. “Specialization” of policy tools is a mistake, especially if it contributes to larger policy misses elsewhere.
While the pre-crisis consensus is now viewed as “wrong” by many, a new consensus is yet to emerge. However, it appears that most US economists are in favor of marginal changes: incorporate a more realistic financial sector into their models, ignoring other factors such as:
1) the unsustainable external imbalance and the inability of the Dollar to adjust,
2) unsustainable patterns of consumption and savings relative to income (partially policy induced),
3) insufficient non-real estate real investment relative to income and the need to generate income for future retirees.
Blanchard offered opinions about the future of policy given the absence of a consensus. Loosely paraphrasing his presentation at the conference he said given the limits of our knowledge, policymakers must move slowly. They must not give up inflation targeting, but experiment moving step by step, altering targets and instruments one by one. It is unclear why Blanchard believes that policymakers have the luxury of moving slowly or why he believes that the global economy will be a well-behaved back drop while policymakers run their experiments.
His conclusion s about post-crisis policy would have been closer to the mark if he had said that policymakers should:
1) move at deliberate speed but cautiously taking into account possible undesirable “side effects” due to market and institutional failures,
2) acknowledge that policy tools do not map one for one into policy target, and
3) recognize that policy trade-offs are inherent given the number of effective tools and the number of policy targets
Policy and Irony
Mention of the global imbalances in Blanchard’s discussion of crisis was conspicuous in its absence—very ironic given he is associated with IMF and that IMF sponsored the conference. It is as if the discussants thought that a more robust regulatory system would necessarily resolve the global imbalances or the recent crisis was completely independent of the global imbalances.
The Tinbergen analysis presumes the existence of policy trade-offs when the number of policy targets exceeds the number of effective policy tools. The Phillips Curve acknowledges a single trade-off for macroeconomic policymakers. The Natural Rate hypothesis allows for none (at least in the long-run).
If nothing else, the absence of policy trade-offs in the current economic thinking is most ironic. By definition, economics is the study of trade–offs: the allocation of scare resources across competing uses, e.g., guns versus butter, labor versus capital, labor versus leisure and present versus future consumption.
However, US macroeconomists and the Fed have decided to side step the problem of the relative scarcity of macro policy tools. They have defined or assumed away all but one use for monetary policy. They continue to treat the optimal stance of monetary policy as if it were separable from other policies as well as from market and institutional failures. As a result, they have a construct in which they have no responsibility to identify and achieve optimal trade-offs that would involve explicit welfare comparisons and value judgments. Defining and assuming away the possible need for policy trade-offs does allow for neat, tractable analytical models. However the resulting policy prescriptions have contributed to decidedly sub-optimal outcomes.
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Nice. Helps to undermine the current destructive power of the Fed and its closed door sessions. Its policies are too important for that and its failure to regulate the large banks too glaring. Where is the full court press that should be being launched against foreclosure fraud and obvious servicer abuse to millions of Americans?
A responsive Fed would have strong consumer advocates such as Elizabeth Warren on board and open balanced discussions on the many excellent items mentioned in this post…
“”Placed in a macroeconomic setting, this suggests that the monetary policy that would be optimal in a perfect world may be inappropriate given the current moral hazard incentives, the inability of the exchange rate to adjust to maintain external balance, too-big-to-fail-financial institutions, the failure of financial regulation, etc. This is especially true given the ample evidence that expansionary monetary policy operates by increasing the risk profiles of financial institutions and the fragility of the financial system.””
One thing is obvious to me in macroeconomic policy; money creation is an art, not a science. Calculus was invented in the 17th century and the Bank of England was founded in 1694. If money creation is a science then shouldn’t we have perfected it by now 317 years later?
But if money creation is an art, then don’t we need complete liberty in practicing it?
The solution, as I keep repeating, is a separate government and any number of private money supplies with floating exchange rates between them. That would allow the private sector to perfect the art of money creation without distortion from government monetary policy. The idea is from Matthew 22:16-22 so it cannot be dismissed as crack-pot (at least not by those who know and respect the Bible.)
The gold bugs have given up on intelligent money creation and are trusting in the mining rate of a shiny metal. They are a serious threat, I assure you. There is a whole school of economics, the Austrians, who think gold IS money. Perhaps it is but only a primitive, environmentally destructive and non-optimal one wrt optimal economic growth.
We can do this. The solution is not that hard. The capital gains tax must be abolished since it penalizes private money alternatives such as common stock (ideal) and PMs (silly). The Income Tax could remain since all private monies would have a free market exchange rate wrt the government’s fiat.
The primary concern I would have regarding private money creation would be with respect to transaction costs. Having a common money supply dramatically reduces transaction costs, as buyers and sellers do not need to perform calculations to convert the currency of the transaction to their currency of choice. Like consistent weights and measures, a consistent currency has facilitated commerce in the country to a great extent (just as reducing the number of world currencies has facilitated world commerce).
The problem with money creation as I see it is we are trying to do too much at once. The author lists six goals, and that is a partial list! Has there been any concrete evidence that any given monetary policy can consistently meet even a single one of those goals? There is a faith in the process that I find to be completely unwarranted by facts. We have admittedly had difficulty meeting the original goal of price stability, but that is hardly an argument for tacking on another five plus goals onto the objectives list.
Having a common money supply dramatically reduces transaction costs, as buyers and sellers do not need to perform calculations to convert the currency of the transaction to their currency of choice. Peripheral Visionary
Modern communications and computers make that a minor concern. In any event, a true free market would determine the optimum balance between the convenience of a few private money supplies and the flexibility and stability of many.
And yes. we are trying to do way too much with only a single money supply. That is why we need liberty to allow as many money private money supplies as necessary. As for government money supplies, perhaps the US needs 51, one for each state as well as one for the Federal Government. Voila! No more need for state borrowing! (Nor should the Federal Government ever borrow either)
I don’t want a free market!
I want a fair market!
The Fed has failed because it refused to regulate it’s members. It has failed because it fostered the excessive creation of Credit Money.
The Government has failed because the Treasury Department and the Justice Department have failed to regulate and to enforce existing laws.
The government has refused to control taxes and expenditures to the point that we on the verge of defaulting on the Federal Debt.
The concept TBTF is in itself a failure! What should have been broken up and recast was and is the concentration of financial power that has been building over the past 70 years.
Fraud is pandemic in the financial markets and here we are dithering about the irony of policy failures.
Give something a bit more cogent please.
I don’t want a free market!
I want a fair market! Siggy
The problem is that there are bad people in government too. In fact, a strong case can be made that government attracts bad people. They either love power, money or both and government and the revolving door is a means to obtain them.
I agree with Siggy!
And saying that there are bad people in government is a total (and I don’t mean this lightly…) COP-OUT.
There are always bad people; there are always challenges. Constant vigilance is required for business owners with respect to their business, and constant vigilance is also required of citizens with respect to their government.
This is not rocket science. Government is not a wind up doll that you start down the right path and never have to watch again. It requires well-thought-out planning, decent goals, well-tailored means, and CONSTANT VIGILANCE.
I wish everyone would stop being so lazy. Some governments work better than others. Instead of complaining about ours, we could, you know, actually work to make it one of the better ones.
Periphery, Central Bankers do not run fiscal policies, the work bores them. Bankers make loans (money multiplier which is now negative). Either the bankers learn what they hate to do since they now are world rulers or power share with governments. I believe the Fed could evolve by recruiting a B team of Save and economists that gather fiscal policy research and execute with the PD’s withn a venture capital construct.
Inflating the debt away with devaluation and no counter cyclical fiscal policy on job creation will lead to an outcome very bad for the people and very bad for the bankers. Win-win is preferrable over blind creative destruction which accompanies world wars in the bust.
By definition, economics is the study of trade–offs: the allocation of scare resources across competing uses, e.g., guns versus butter, labor versus capital, labor versus leisure and present versus future consumption. Richard Alford
Not so fast. For one thing capital is distinct from money which is why we have recurrent recessions even in the presence of abundant real capital (labor, technology, factories, farms, etc).
Furthermore, the labor vs capital conflict is artificial. Without the government enforced money monopoly, it is likely that workers would have to be paid with equity. The workers would thus be co-owners of the capital.
As for those other trade-offs, they are debatable too. Consumption and leisure (in moderation) are undeniably good for economic growth.
But let’s not argue. Let’s just have liberty in private money creation and we shall see what trade-offs are unavoidable and which are not.
Would you have hard money or promises to remit hard money?
Would a commodity backed redeemable paper money satisfy your desires?
Private money supplies? Wow, as the Little Old Lady famously said some years ago; Where’s the Beeef?
Would you have hard money or promises to remit hard money? Siggy
Neither! The first is silly and the other is often a fraud (fractional reserves).
Give me common stock in a well run, debt-free corporation.
Wow, as the Little Old Lady famously said some years ago; Where’s the Beeef? Siggy
Good question! The “beef” is in consumer demand for that private money. Where is the “beef” in a movie ticket? Is it not the movies one could watch with it?
I agree with much of this post, but just as it points out that the Fed has missed the big picture, I would say it commits the same fault. Except for a few tangential references, “moral hazard”, “market and institutional failures”, it doesn’t get to the heart of the matter, which is criminality.
Our economic system is dysfunctional, but not in the way Alford suggests. It is not being run poorly. It’s being run by crooks, i.e. it’s a kleptocracy. I know I repeat that a lot, but post like this one show why it is so important to do so. It’s like an American opining on cricket or a Brit, on baseball. There’s a certain awareness of the mechanics but no real idea of the strategy or purpose. Consider Alford’s post and then reconsider it in light of our economic system being a kleptocracy. In his formulation, we have a series of events that just sort of happened. Those who made the decisions may have been wrong but their intentions were benign.
Alford says it is important to add global imbalances into the conceptual mix. I have no problem with that, but what about domestic ones? It is impossible to understand our current economic conditions without reference to the enormous inequality in wealth in our country. The top 1% own 1/3 of the country. The top 10% own 2/3 of it. Together they own the government and the Fed. It is superfluous to ask why the Fed pursues policies which favor the rich. It is not about having enough tools for targets. It is about the wealthy using any and all tools to further enrich themselves. It is about them controlling so much of the nation’s wealth that there simply isn’t enough left over to fuel a real recovery, create jobs, and improve wages even if they wanted to, and they don’t. That too is a feature of kleptocracy. Kleptocrats will keep pushing the looting to a point of collapse that takes them out along with everyone else.
This is my core problem with Alford and other liberal Establishment economists. They believe that our economic system has imbalances and if we just can identify and address those, we can bring the system back into equilibrium. What they miss is that those imbalances aren’t a bug but a feature of our economic system. It is through their exploitation that our elites maintain and increase their wealth at the expense of the rest of us. There is nothing benign in the least about this. It is criminal from beginning to end. This is the perspective Alford and others should be using. It would be interesting to see what they came up with if they did.
You are kinder than I would be to this guy, Hugh. I grow weary of these “establishment” economists doing all this head scratching from 2008 on. Look at this quote “In short, Blanchard sees economic policy as more complex and messy than the pre-crisis consensus (see here and here for additional commentary on the conference)”
“Complex and messy”? No it’s not! As Hugh says, theft is a “feature, not a bug”. In olden days, marauders stole other villages stuff outright. Now, they use
political hacks to pass laws that allow these predators to steal legally. This is the predator state that Veblen and recently Galbraith wrote about. It is, as Hugh says, about a bunch of kleptocrats. I look at neo-liberal economics as just repackaged feudalism. Naomi Klein calls them “shape shifters”.
Yes, take the glasses off and look at this as fraud.
I think they want to keep both mandates as it gives them the additional flexibility (excuse) to do what the want regardless. They can, as they now do, point to one or the other as a reason to take the action they are taking.
As for the Fed thinking, incorrectly, by micro managing monetary policy they really add any value I for one will dispute that illogic. The Fed since it’s inception has been a more destabilizing force on the “real” economy that it has been any help…..it’s policies are disruptive in nature, lead to speculation by design and have destroyed more wealth than has been created.
It is time to End the Fed, then we don’t have to debate over the side show distractions of what FED priorities are or should be. As Hugh said above the FED is an engine of corruption used by a banking cartel (as designed in 1913) to transfer wealth from the masses to the few (Money and Power elite).
The Glen Beck show on Friday will spend the entire hour on the FED with guest Ed Griffin author of “The Creature from Jekyll Island”. No matter what people think of Beck, this is one show everyone needs to watch.
I received a copy of the “Creature” in 1998 and unwisely put it on the shelf for a later read. In 2009 I dusted it off, read and digested the content. I now wish I had read it in 1998, I would have had a very different perspective going into the aughts. I believe armed with the information I would have maneuvered to prevent a lot of monetary losses and angst. Ed Griffin did a superb job of research and authorship of one of the best books on the history of money, banking and creation of the FED. It is disturbing and outrageous to see the repeated pattern that the banking cartel, FED and gov’t corporatism continue to exploit (both domestically and internationally)
* “get them in debt”
* “keep them in debt”
* “when they get into trouble, loan them more”
* “strain them, break them”
* “go to to gov’t (World bank, IMF) for bailout”
When more and more people understand that the FED is a Financial Weapon of Mass Destruction, used by the banking cartel (ME, PE) to transfer wealth from the masses to the few; the call to End the FED will continue to get louder. When more people really understand the evil underlying the “system” it will be surprising that we do not see more aggressive actions.
Siggy said: “Would you have hard money or promises to remit hard money?”
I’d have fiat currency with NO DEBT.
While there can be a difference between a gold standard and a fiat currency, the problems now and in the past are almost always about the debt, which can occur with either one.
The way the system is set up now, why should all new medium of exchange be the demand deposits created from debt, whether private or gov’t (meaning it has to borrowed into existance)?
Obsvr-1 said: “When more and more people understand that the FED is a Financial Weapon of Mass Destruction, used by the banking cartel (ME, PE) to transfer wealth from the masses to the few; the call to End the FED will continue to get louder. When more people really understand the evil underlying the “system” it will be surprising that we do not see more aggressive actions.”
Yes, indeed!
savings of the rich = dissavings of the gov’t plus dissaving of the lower and middle class
IMO, the rich, the fed, and the bankers are out to “steal” the real earnings growth and retirement of the lower and middle class
@Fed Up
Absolutely – The US sovereign nation should abolish the DEBT based FRNs, abolish the FED and Issue new US Dollars that are spent into existence. This would end interest payments on the National Debt (which would be converted to an accounting entry at the US Treasury “Taxes Due” ). US Treasury gets out of the un-needed bond market.
* We have a system where a cartel of banks created the FED to ensure a perpetual flow of cash (interest on debt), there is no justification for the US Gov’t to borrow from anyone to spend.
— The simple equation for the deficit is DEFICIT = FISCAL (spend) – TAXES (received).
— The National “Debt” is simply the ACCRUALS of DEFICITS.
Since the FRA 1913 creation of the FED, the banking cartel in collusion with congress set in law the mandate for the US Treasury (UST) to sell bonds to account for deficit spending. Given there is absolutely no reason that the USA borrow to spend ( in fact the spending occurs unabated before Bonds are sold).
Given the premise that the US Gov’t does not need to borrow to spend, the game needs to end with a new structure moving forward.
1) End the borrow to spend doctrine — US Gov’t spends “money” into existence. All new spend is in US Dollars (FRNs collected and destroyed over time)
2) Set up an account at the UST to track the accumulated deficits “TAXES DUE” e.g. Accounts Receivable, increases with deficit spend, decreases with taxes received.
3) Repeal the FRA 1913, End the FED as there will no longer be a need for a CB to perform monetary policy. FED operations, clearing, research, economy monitor and statistics functions can be absorbed into the UST.
4) Repeal the 16th amendment, end the income tax — replace with a consumption tax (e.g. fairtax.org) — This will eliminate the “Franken-tax” with perverse incentives which is loaded with special interest deductions, credits and loopholes. IRS can be downsized enormously and reduce the special interest lobby influence. A consumption tax would put in place a dynamically adjustable tax flow that tracks the variability of the GDP with a counter or pro cyclical feature to moderate the inflation/deflation forces. The tax flow would be working systematically 24×7 reflecting market dynamics which is far superior to the few inherently flawed humans that are trying to do this today (FOMC).
5) End the TBTF doctrine, ending US Gov’t backstops and/or bailouts. Allow a competitive free market to operate and return business risk back to each individual business. The owners and investors will retain the risk maintaining a more strict risk management process. Allow failure to be resolved by the market and bankruptcy processes for ALL businesses. This would reduce the special interest lobby influence.
6) Phase out and End all Gov’t subsidies, end the “pick winner and loser” doctrine to restore competitive free market dynamics, thus reducing another set of special interest lobbyists.
People need to demand structural and fundamental changes for a return to Constitutionally sound processes. The rest of the political wrangling over budgets, social policy, defense and security is a distraction and perpetuates the tangled mess of tax code, legislative process and the usurping of our Constitutional rights and liberty.
This all reminds me of how some people turn their kitchen into a chef’s kitchen, even though they can’t cook worth shti. They think the more tools they have, the better the cook they’ll be. But what really happens is that they lose themselves in a forest of tools. How many knives do you need to slice a piece of meat? So the duck is burning when they’re looking for that special basting needle, specially made for duck. they shoudl just use a spoon. I can cook anything wth three pots — a spaghetti pot, a frying pan and a soup pot. That’s all anyone really needs to be a master chef.
Just like you can be a photographic artist with a Fuji Quicknap you get at Wal-mart with 35 mm film already installed. You don’t need a $7000 digital Leica or a Nikon F3 for God’s sakes. It just means your lousy picture will look even worse, probably because the camera will have so many software tools you won’t even know what they all mean.
The problem with the fed is that even if they have as many tools as problems they’d just burn the duck because they’d argue about which tools to use. And they’d produce new problems that required new tools. So the problems would be one step ahead of the tools.
The other even bigger problems is that they’re not the only cooks in the kitchen. That is a theoretical problem of the highest order when many of the other cooks are criminals and are causing the problems in the first place. So the more tools the Fed has, the more arguments they’ll have and the bigger mess they’ll make and the more the criminals will eat.
There are always bad people; there are always challenges. Constant vigilance is required for business owners with respect to their business, and constant vigilance is also required of citizens with respect to their government. Anonymous Jones
But what some people do is ridiculous. They try to regulate a FUNDAMENTALLY dishonest money system, government backed fractional (fictional is more accurate) reserve lending in a government enforced monopoly money supply.
How can that work? It can’t as history proves over and over.
Siggy and Hugh have it right. Mr Alford is very glib, but he never uses the word fraud. So what a waste of words.
I’m not sure I follow the thrust of the essay. Is Mr. Alford saying fiscal policy is useless, or used less than it should be?
What we need is policy intervention to kick-start small business. Provide subsidies, tax breaks, award ceremonies, gold stars, whatever it takes to start small businesses, and stoke the demand for goods produced by those businesses.
We are suffering from lack of demand. The few people not on unemployment are hoarding against the expectation of being fired. Even just improving unemployment protection, job guarantees, job placement programs, subsidizing education (to cure our “structural problems”) would help. Get CalTrans to fix the freeways, they are awful!
But I take it that “structural problems” is just a euphemism for “race to the bottom.” If that’s the case, then it’s time to erect trade barriers. Globalization only seems to help multinationals, and they are slashing staff. They don’t create jobs, so forget them.
Do something other than print money, Bernank!
Ok, so change needs to happen. At most we have merely the last remnants of a vibrant Democracy left. So, what do we DO?
Other than blog?
Personally, I favor every person in the U.S. to stop paying their mortgage, which would weaken faith in the dollar, which is scarry. But also is the only real weapon I can think of.
I say we barter. We don’t need Wall Street to loan us money if we barter. Our debts, if any, would only be payable to each other, so usury is only possible to the pitchforks-and-torches limit. Bartering is tax-free — sales tax and income tax free. You can barter your time easily.
It sounds primitive, but it’s the only way for people to work around the hoarding of cash.
We rebuild social safety nets. Talk to your neighbor, help them out. When people feel secure, they are less likely to hoard.
Then, we get involved in our government. Of the people, by the people, for the people. We put decent people in office, and keep the pressure on them to be decent.
Rebuild from the ground-up.