Some observers, including some official Fed observers have fetched the memory of Milton Friedman, this great and gifted man, to further their own ends; specifically, support for the recent Fed agenda. Radical Muslim types too have an agenda - to rid the world of us infidels, bringing God into the act for support, with the ever-present chant, “God willing.” God’s not been willing fortunately; nor would be Freidman, to endorse the current reckless ways of the central bank.
Friedman would counsel the Fed to continue to provide high-powered money, but it stops there.
The Bank of Japan’s Shirakawa is about to learn that lesson - a zero interest rate policy does not necessarily mean easy money. Curiously, in a speech in Canada, six years before his death, Friedman addressed this very dynamic for Japan. And now Abe will “encourage” the Bank towards that end.
Yet Friedman would be revolted by the evolution of central planning at the Fed. Certainly the “dual mandate,” a modest form of central planning, he would question; more extreme forms of planning he would reject outright. And we should too.
The dual mandate has been around for 35 years, since the Humphrey-Hawkins act of 1978 which established a goal of “maximum employment and price stability.” But policy makers ignored the "maximum employment" portion of the mandate, at least in their FOMC deliberations. Dan Thorton of the St Louis Fed in an article in their Mar/April 2012 Review examined FOMC transcripts, and not once was the “maximum employment” goal mentioned; not that is until Dec/08. The reason is that policy makers, correctly, believed these this to be a redundancy. It is price stability which is the prerequisite for full employment. Easy. This has been demonstrated time and time again.
Now, with inflation tame, and nobody else up to the task, policy makers have moved to pursue fiscal policy - the Fed is targeting unemployment at 6.5%, an out-of-the-hat number.
But much worse is the current policy favoring homeowners at the expense of seniors. "Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve," Richmond Fed pres Lacker said, adding that trying to influence credit allocation within the economy was a function of fiscal policy. Duh!!
The ultimate end of economic planning is the end of consensual government because planners make arbitrary decisions, favoring some and penalizing others, without the guiding hand of the auction market.
What we have now as a result of Fed planning is a phony economy, with a safety net for government and big business, and a minefield for the rest. What is real, and what is simply Fed-birthed? This, combined with the regulatory cliff (over the past 12 years, the number of provisions of the tax code expiring annually has increased tenfold; the number of federal workers engaged in regulatory activities has grown by 25% from 2007) explains why job-creation will disappoint, 2013.
Friedman would have none of this. He spent the better part of his career (along with Hayek, Adam Smith, Lord Acton, Taylor and many others) exposing the putrid underbelly of an activist state; we doubt he ever dreamed we would one day encounter an activist Fed.
Robert Craven
Friedman would counsel the Fed to continue to provide high-powered money, but it stops there.
The Bank of Japan’s Shirakawa is about to learn that lesson - a zero interest rate policy does not necessarily mean easy money. Curiously, in a speech in Canada, six years before his death, Friedman addressed this very dynamic for Japan. And now Abe will “encourage” the Bank towards that end.
Yet Friedman would be revolted by the evolution of central planning at the Fed. Certainly the “dual mandate,” a modest form of central planning, he would question; more extreme forms of planning he would reject outright. And we should too.
The dual mandate has been around for 35 years, since the Humphrey-Hawkins act of 1978 which established a goal of “maximum employment and price stability.” But policy makers ignored the "maximum employment" portion of the mandate, at least in their FOMC deliberations. Dan Thorton of the St Louis Fed in an article in their Mar/April 2012 Review examined FOMC transcripts, and not once was the “maximum employment” goal mentioned; not that is until Dec/08. The reason is that policy makers, correctly, believed these this to be a redundancy. It is price stability which is the prerequisite for full employment. Easy. This has been demonstrated time and time again.
Now, with inflation tame, and nobody else up to the task, policy makers have moved to pursue fiscal policy - the Fed is targeting unemployment at 6.5%, an out-of-the-hat number.
But much worse is the current policy favoring homeowners at the expense of seniors. "Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve," Richmond Fed pres Lacker said, adding that trying to influence credit allocation within the economy was a function of fiscal policy. Duh!!
The ultimate end of economic planning is the end of consensual government because planners make arbitrary decisions, favoring some and penalizing others, without the guiding hand of the auction market.
What we have now as a result of Fed planning is a phony economy, with a safety net for government and big business, and a minefield for the rest. What is real, and what is simply Fed-birthed? This, combined with the regulatory cliff (over the past 12 years, the number of provisions of the tax code expiring annually has increased tenfold; the number of federal workers engaged in regulatory activities has grown by 25% from 2007) explains why job-creation will disappoint, 2013.
Friedman would have none of this. He spent the better part of his career (along with Hayek, Adam Smith, Lord Acton, Taylor and many others) exposing the putrid underbelly of an activist state; we doubt he ever dreamed we would one day encounter an activist Fed.
Robert Craven
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