Bennie and the Fed

Ben BernankeLots of politics today. Matthew Yglesias asks a very smart question, “If the unemployment and inflation rates were reversed, would the Fed do something about it?” You see, the Federal Reserve has a double mandate: minimize inflation and maximize employment. Right now, the inflation rate is less than 2%—far less than its historical level. The unemployment rate is over 8%—far more than its historical level. And yet the fed does… Nothing!

Yglesias asks if the Fed would do something if unemployment were less than 2% and inflation were over 8%. And the answer is, “You bet your second house in Nantucket!” However, Yglesias doesn’t explain why this is, probably because he doesn’t want to soil his reputation as a thoughtful political observer. I have no such reputation to soil, so I will tell you.

Bennie and the Feds aren’t doing anything because the current situation is great for them and all of their friends. You see, if you are wealthy and have lots of cash, inflation is terrible. You money loses value. If you are poor and in debt, inflation is great. Your debt gets reduced without even paying it down.

Similarly, if you are rich and own a company, high unemployment is great because you can get the best workers for the lowest prices. But if you are poor and unemployed, high unemployment is terrible for obvious reasons.

Bennie and the Feds are not doing the job they are paid to do. They are supposed to maximize employment and minimize inflation. Yet all they do is minimize inflation. They should be fired.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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