The Federal Reserve is arguably the government’s most important agency, even if it is (nominally) independent. It has control over the price system, the most fundamental part of any economy. It also exercises significant power over the banking sector, and in recent years has taken to doing large favors for Wall Street. These are all reasons why Janet Yellen’s nomination for Fed Chair needs to be carefully vetted. To that end, my CEI colleagues John Berlau and Iain Murray and I put together some questions about several facets of the Fed’s mission we would like to Yellen answer, whether during her confirmation hearing or elsewhere. You can read the short WebMemo here. Here is one of our questions about inflation:
Many observers expect you to pursue an inflationary stimulus, and believe this is likely a reason for your nomination. If your actions are already expected, will markets not take these expected price level changes into account in advance? If so, do you believe this would blunt the employment impact of any monetary expansion? Would you respond to these pre-existing expectations with an unexpectedly high inflationary policy?
As John, Iain, and I write, Yellen’s credentials are not in question. But the policies she might pursue as Fed Chair are. Read more here.
Have a listen here.
Unemployment remains stubbornly high, more than three years after the financial crisis hit. Congress has tried a number of measures, from fiscal stimulus to stricter financial regulations. None of them have worked. That’s because they get in the way of the key driver of economic growth – innovation. And as any entrepreneur will tell you, innovation requires investment. John Berlau, CEI’s Senior Fellow for Finance and Access to Capital, suggests a number of reforms to make innovation, investment, and job creation easier.
Mark Mills and Julio Ottino argue that despite current troubles, our economic future is a bright one:
In January 1912, the United States emerged from a two-year recession. Nineteen more followed—along with a century of phenomenal economic growth. Americans in real terms are 700% wealthier today.
In hindsight it seems obvious that emerging technologies circa 1912—electrification, telephony, the dawn of the automobile age, the invention of stainless steel and the radio amplifier—would foster such growth. Yet even knowledgeable contemporary observers failed to grasp their transformational power.
In January 2012, we sit again on the cusp of three grand technological transformations with the potential to rival that of the past century. All find their epicenters in America: big data, smart manufacturing and the wireless revolution.
Read the whole thing.
Roger Cohen’s column in today’s New York Times is titled “Decline and Fall.” Channeling Gibbon, he compares America in 2011 to Rome in 475 A.D., says “the West is shot,” commits the broken window fallacy, and generally paints a picture of doom and gloom.
Classical references aside, Cohen seems to be innocent of historical knowledge. The graph below shows real GDP since 1929 (source). The wee little dip at the end is the cause of Cohen’s histrionics.
Yes, economic growth is weak. Far, far too many people are out of work. And it will probably be a few years before boom times return. But context, please.
Over at RealClearMarkets, my colleague Wayne Crews and I argue that the law of demand holds. Hard to believe that’s actually controversial, but that’s Washington for you. Here’s our conclusion:
Eberly was put in an uncomfortable position when she came to Washington. Just as a lawyer’s job is to vigorously defend clients even if she knows they are guilty, Eberly’s job is to vigorously defend policies that are obviously harmful to the economy. Try as she might, she cannot argue against the law of demand.
Regulations make hiring costlier and thus make jobs scarcer. And regulatory uncertainty makes companies reluctant to hire employees they might not be able to afford down the road. Case closed.
Read the whole thing.
Whether you love the New Deal or loathe it, its policies were not entirely new. FDR’s predecessor, Herbert Hoover, set the precedent. History remembers him as a laissez faire president; a do-nothing who simply let the Great Depression happen. This requires an odd definition of “laissez faire” and an even stranger understanding of “do-nothing” to actually be true.
A new Cato paper from St. Lawrence University economics professor Steve Horwitz takes a closer look:
In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation—all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt’s advisers knew that Hoover had started the New Deal. One of them wrote, “When we all burst into Washington … we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself.”
Read the whole paper here.
Russ Roberts and John Papola are at it again. Last year they made a rap video starring F.A. Hayek and John Maynard Keynes. It garnered over 2 million views, many of them in economics classrooms. Today, they release the sequel. Check it out.