Saturday, August 27, 2016

Are we all Keynesians now?

Regardless of what the Fed does, it attracts detractors from the Right, the Left, or simply from voices with an academic ax to grind.  These debates ensue among and between institutional investors, economists, politicians, journalists and business leaders. 

Now the Fed has received a social activist group at its annual Jackson Hole symposium to hear their views on monetary policy.  This week, a movement called “Fed Up” sponsored by The Center for Popular Democracy met with a number of Federal Reserve officials including Bill Dudley, president of the Federal Reserve Bank of New York

The Fed Up members get an “A” for inventiveness – these groups usually petition the legislative and executive branches of government that control spending and tax policy, but now one has successfully lobbied the The Federal Reserve -- within spitting distance.  To be fair, the group did have some trained economists in their midst, but did this group have any business at this symposium?

The Fed’s dual mandate is to influence inflation and employment levels for the benefit of the nation.  Everyone agrees we’ve had an anemic recovery since the Great Recession but a
 disturbing part of this story is the ongoing pattern at forums -- public or private -- that feature some kind of socioeconomic class protest (Occupy Wall Street, Black Lives Matter, etc) instead of reasoned debate about complex problems.

Economics and politics are inextricably linked yes, but Fed actions are logically debated on the basis of what’s good for the economy as a whole.  

Is the discipline of economics precise enough to determine whether tightening or loosening short term interest rates will produce near term benefit for any group?  And even if you believe so, should Fed forums become a town hall with listening sessions?  

Ultra low interest rates and massive bond buying by the Fed has propped up the stock market, but also hammered elderly people living on fixed income investments.  Should AARP have an advocacy group in Jackson Hole (presumably wearing different colored T-shirts) to push for monetary tightening?