The Fed’s Finite

November 15th, 2013 at 9:17 am

In listening to the Yellen confirmation hearing, I was left thinking that the Fed’s limits are somewhat under-appreciated these days.  Over at the NYT blog.


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2 comments in reply to "The Fed’s Finite"

  1. tyler says:

    While there is indisputable evidence that the stimulus of 2009 worked, there is no evidence that low interest rates and QE have lowered unemployment.

    I think the Fed should end QE and slowly raise interest rates, just to see if it helps.

    Here’s a post from Rodger Mitchell:

  2. smith says:

    Congrats on solving or summarizing that equation.

    high unemployment = lower low wages = higher profits = higher high wages = greater inequality

    Directed not necessarily at this blog, the question is what is taking so long to understand this? It seems simple and obvious, but it’s not commonly accepted wisdom even by progressives.

    One subtlety that obscures debate with those of opposing views, who argue

    higher high wages = higher profits = lower unemployment

    is that no one heretofore acknowledges higher unemployment is beneficial to higher wages or that there is a causative effect.

    Krugman recently acknowledged the tradeoff of dysfunctional government and lower GDP in return for lower taxes (sorry don’t have link) but I don’t recall seeing any similar a-ha moment for tradeoff of lower GDP for higher high wages due to higher unemployment.

    To summarize, there are four policies to fight, four big lies to counter:

    1) Smaller government because government is inefficient, wasteful, bloated, unresponsive bureaucracy, ever growing, drains market resources, and especially targets top wealth producers. This is all true, but the real agenda is to keep taxes low for high earners and avoid a return to redistributive and putative confiscatory (thus excessive compensation preventative) rates.

    2) Acceptance of high unemployment because markets must be allowed to restore the economy and government intervention (stimulus or other measures) will not work, and tends to impede recovery, as best evidenced by failure of Obama stimulus to create robust recovery. Again, the dirty secret is just how much high income earners benefit from slumping economy. I’d argue most high earners are not even aware their positions are shaped by their own experience and beneficial position in such an economy.

    3) Obsession with deficit spending, mortgaging children’s future. Bogus argument is very convincing to those who are inexplicably never given explanation that spending is an investment, same as buying a house, a car, or education, that we borrow mostly from ourselves, that real damage comes more from trade deficit and lack of investment, erosion of work skills. Again the true agenda is to align with points 1) and 2) above

    4) Spector of inflation, a tax on everyone. Except actually not, higher inflation disproportionately hurts creditors, aids debtors. Low inflation helps those with money able to buy things. There is a secondary effect on wages, inflation causes workers to pay attention to raises, an anathema to ruling class. (Please note though, progressives can not control even normal inflation, despite assurances, because they won’t or can’t disrupt oligopolies and outright price fixing, see USAir American Airlines)

    Finally, the great point coming from this blog is

    high unemployment = low wage increases

    Nowhere is this point driven home except in this blog, “Why should the 90% employed care about the extra 5% unemployed in a slumping economy?” (aside from humanity which people dismiss in themselves as hopeless sentiment)

    Because they can’t get a decent raise until the 5% are back to work.

    Obama continues to make the ineffective humanity argument.