The Question Isn’t Whether the Fed Should Be Stripped of Its Mandate to Maximize Employment … The Question Is Whether the Fed Has Too Much Power → Washingtons Blog
The Question Isn’t Whether the Fed Should Be Stripped of Its Mandate to Maximize Employment … The Question Is Whether the Fed Has Too Much Power - Washingtons Blog

Wednesday, November 24, 2010

The Question Isn’t Whether the Fed Should Be Stripped of Its Mandate to Maximize Employment … The Question Is Whether the Fed Has Too Much Power


The Fed says that unemployment will remain high for years.

Some Republican congressmen are trying to take away the goal of ensuring full employment from the Fed. See this and this.

Conservatives argue that the relationship between inflation and unemployment - as represented in the Phillips Curve - is false, and therefore the rationale behind the dual mandate makes no sense. See this, this and this.

Liberals like economist James, Galbraith, congressmen Jerry Nadler and Alan Grayson and Senator Bernie Sanders are defending the Fed's mandate to maximize employment.

But I think that all of their arguments pro or anti the Fed's dual mandate are missing the point.

Specifically, the Fed's dual mandate was created more than 30 years ago, in 1978.

The Fed has had this full employment mandate all throughout this economic crisis. But it is indisputable that the Fed's actions have been increasing unemployment. See this and this. Indeed, John Williams puts the current real unemployment rate at around 23%.

The Fed had the mandate in 2007, 2008, 2009 and 2010 ... but it acted to save the big banks instead of the American worker.

And yet the Fed has been given more and more power - even though it has been increasing unemployment ... and even though the American people already thought the Fed had too much power. See this, this and this.

So the problem isn't the Fed's dual mandate ... the problem is that the Fed has too much power. And the Fed has wielded that power to save its shareholders (the big banks), at the expense of Main Street and the real economy.

4 comments:

  1. Duh. We Bahamians cannot believe ya'll gat that kind a thing goin' on. That would never work in the Bahamas. Ever. Too small. Everyone would "know".

    ReplyDelete
  2. “And the Fed has wielded that power to save its shareholders (the big banks), at the expense of Main Street and the real economy.” You cannot blame the Fed for this because the Fed does not have the power to feed stimulus to Main Street: only Congress can do that. And Republicans intend blocking any form of stimulus in any way possible. As Senate Minority Leader Mitch McConnell put it, if getting rid of Obama “means doing nothing to help 15 million Americans searching for work who can't find it, too bad.” Source: http://www.thefiscaltimes.com/Blogs/2010/11/22/What-the-Republicans-Really-Want.aspx

    ReplyDelete
  3. The employment mandate is a problem. It is central economic planning and it always fails. It is no different than any Soviet 5-year plan. The Fed was created to be a clearinghouse and emergency liquidity provider-everything else is Marxist-style central economic planning.

    ReplyDelete
  4. I believe the Fed should maximize employment. But the correlation between employment and inflation was disproven during the Clinton presidency when the USA had peak employment and minimal inflation.

    ReplyDelete

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