Yesterday over at Washington Post, Matt O’Brien explained, Why the Fed Is Giving Up Too Soon on the Economy. This is in reference to the Federal Reserve ending the third round of “quantitative easing” or QE3. He noted that in 2013, because of all the federal government cutbacks, the economy should have slowed down a lot. But it didn’t. And the reason for that is because of QE3. I’m not sure if I agree with that, but it is a reasonable contention. I will at least go this far: quantitative easing provides at least some stimulus to the economy and it is just crazy to think that it is a bad thing to do given our current economic situation.
O’Brien imagines what it would have been like if the federal government had done its job and not enacted policies to harm the economy. We might have seen 300,000 jobs added per month for the last two years. Except: no. This is something that economists just don’t appreciate enough. If the federal government had done its job and stimulated the economy — as everyone knew was the right thing to do since World War II — then the Federal Reserve would not have done any quantitative easing.
It is true that the unemployment rate has fallen from 7.9% at the start of 2013 to 5.9% now. But is this real? We haven’t seen wages going up. And then there is the employment rate. The following graph shows the percentage of people age 25-54 who were employed before the financial crisis and after. Given the ages, this can’t have anything to do with people retiring. And what we see is that we are maybe 20% of the way back to full employment. So that 5.9% unemployment level isn’t anywhere near full employment.
So why is the Federal Reserve ending QE3? Well, if you want the official — “Let’s play nice!” — answer, you can read O’Brien’s article. I would say, however, that in ending QE3, the Fed is doing what it always does: the absolute minimum it can get away with. As long as inflation stays low, the power elite will be happy. The Fed only needs to look like it cares about employment. It doesn’t really have to care about it. After all, employment is just an issue that affects the little people. The Fed is not interested in it and they certainly aren’t afraid of it. Janet Yellen won’t lose her job because millions of people unnecessarily go without work.
So what this all comes down to is that the Fed sees its job as the backstop: something that will stop things from going too far gone. But if the elected government were doing its job, the Fed would be focused on the one thing it really cares about: keeping inflation low. And they care about that, because that is what the plutocrats care about. What matters is that people with lots and lots of money continue to enjoy their rents on it. It is a joke that the Fed has a dual mandate to keep inflation low and employment high. As Matt Yglesias said a couple of years ago, “If the unemployment and inflation rates were reversed, would the Fed do something about it?” The answer is: a lot. But what was it doing about the high unemployment at that time: as little as possible.