Yesterday, Paul Krugman wrote about the Federal Reserve’s almost certain coming interest rate hike. I’ve been very gloomy about this and you all may be very bored with my obsession. But it is really important. And Krugman added an extra bit of gloom. He said that the Fed could very well be wrong about the economy — causing it to stagnate. “And this would be much more serious than a modest uptick in inflation, because it’s not at all clear what the Fed could do to fix its mistake.” That sentence sent a chill down my spine.
The issue isn’t really interest rates; it is rather the expectations of the business community. It doesn’t take much for the economy to go on tilt. A few businesses start laying off workers and it starts a cascade. And the Fed does what? Lower interest rates?! The interest rates wouldn’t be high enough for that to have much effect. The vast majority of businesses are just reacting to the businesses that reacted badly to the first Fed rise. Sure: it will all sort itself out. Eventually. But I’m old enough to take Keynes’ maxim very seriously, “In the long run we are all dead.”
Krugman has written a lot over the last several years about how inexplicable it is that policymakers continue to listen the advice of people who have been “wrong every step of the way.” But I don’t really understand his confusion. Isn’t it clear enough that it is the policymakers themselves who want to do what has been shown to be “wrong every step of the way”? I am not inclined to give the Fed much credit here. It is an institution of, by, and for the bankers. It isn’t raising interest rates because it thinks this is what the economy needs right now; it is raising them because it wants to and now it can get away with it.
But let’s suppose that Janet Yellen and Partners, LLC does get it wrong. Let’s suppose they raise interest rates and the economy stagnates or goes into recession. That will mean millions of people who should have had jobs won’t. But I can tell you some people who won’t be out of a job: Fed Chair Janet Yellen; Fed Vice-Chair Stanley Fischer; Fed Governor Daniel Tarullo; and so on. None of them will be held to account. People like that are never held to account.
Krugman wrote, “But those critics have been wrong every step of the way. Why start taking them seriously now?” A better question might be, “Why do they even have jobs?” The truth is a professional fire fighter who was terrible at his job would not be a professional fire fighter. That goes for pretty much every job that regular people have.
I was recently on the periphery of the firing of a writer at my day job. I feel bad about it because I was at least party to blame: I complained about him a lot. The truth is that he was turning in crap work. Yet the work was passable. He never did anything that seriously damaged the company. But if the Fed seriously damages our economy, no one will be fired.
I would have to check but generally removal from office “for cause” according to 12 USC § 242 only means things like gross incompetence or criminal activity. So maybe if one of them got a felony DUI.
So their being “wrong” on raising the rates would not matter to the people who could force a notice of resignation.
Right. But my critique is primarily about the system and how we choose to treat elites. What’s annoying in this situation is that as long as inflation stays low, these people are likely to get re-appointed, as long as there is a Democrat in the White House. Of course, in this particular case, if they tank the economy, there probably will be a Republican. But regardless, they wouldn’t be “fired” for tanking the economy; they’d be fired for being of the wrong party. It’s funny, because in that sense, President Cruz would likely owe his presidency to Janet Yellen.
I suppose the problem is that there is no real way to hold them accountable. You can give them a bad performance review but their terms last for 14 years for rather sensible reasons but it does mean that it is hard to take them to task for their stupid decisions.
Imagine that the Fed, in the name of stopping imaginary inflation, throws us into a deep recession. Would Janet Yellen suffer anything for it? Would it cost her a hit on her reputation except from people like me? Would she have any trouble getting a high paying economics job after she steps down? She would have done the equivalent of a boiler tech letting a building blow up. That boiler tech is going to see major job blowback. But not Janet Yellen. And, in fact, not anyone in the power elite. That’s a problem. And it has always been. But it hasn’t always been this bad.
David Cay Johnston writes about how in the 1970s, he was uncovering financial malfeasance of the order of hundreds of thousands of dollars. People lost jobs. People when to jail. Now he uncovers malfeasance of the order of billions of dollars. And nothing. Literally: nothing happens. Look at the result of the S&L scandal in the 80s? Hundreds went to jail for things that are trivial compared to the 2008 crisis.
I understand that we have a broken system and it is the way it is. But that doesn’t make it right. But it’s worse than that because these people aren’t even shamed by society anymore. Look at Judith Miller’s book tour!
I think I may have missed something-I am not disagreeing that someone like Yellen needs to be held to account for her failure to adequately executing her duties. I am asking what should be done to do so?
I already agree that the most recent economic debacle needed criminal charges and the time for the filing of those charges is soon going to toll. But I don’t see how that holds her accountable for failures at the Fed.
I would like to see the Fed changed, because I think it is wrong that 5 of the 12 members are basically appointed by the banks. That’s a huge conflict of interest. But other than that, I don’t think any change is needed. I think the real problem is Congress. When Yellen is testifying, she gets ridiculous questions about debasing the dollar — exactly the opposite of what she’s doing. Every one of them should be hammering the Fed on its dual mandate: “Why do you operate like you only have a price stability mandate? Why don’t you care about maximizing employment?” Remember: Yellen is a liberal. The reason she doesn’t care about employment (as a practical matter) is because she only gets pushed from one side.
But a big part of this problem is that the vast majority of people have no idea what the Fed does. They don’t know that the Fed literally determines whether or not they have jobs. So I’m just trying to hammer the point home. Again. And again.
Everything comes down to this: you can’t have a functioning democracy if the people do not take responsibility for it. But I fear we’ve gone off the rails. Maybe it’s too late. In Chris Hedges’s Death of the Liberal Class, the problem is that the liberal class (upper upper middle class?) has not done its job of controlling the excesses of the rich. That may well be true, but it doesn’t explain why the liberal class hasn’t done its job. What clearly is true is that we’ve reached a level of inequality, where it is hard to control. There is no shaming of the rich because they only even deal with other people who act just like them.
But has anything I’ve ever written indicated to you that I know what to do about anything? I can’t even get people to watch better films!
I am a lot like Hillary Clinton-I want to work on solutions. Problem has been identified, now what to do about it?
And I see some-ask better questions at confirmation hearings, haul up to the Hill to demand answers to questions on why they don’t care about workers, increase the time from being appointed from a bank or to go to a bank to longer than two years…
As for the films-I don’t watch most of them because I don’t like watching movies alone and if we ever meet in person, it gives us an easy out to avoid awkward boring conversations. :D
Ha! Better choose carefully or you may not be able to shut me up afterwards.
I do know there are people who ask good questions. But they are peppered. This is the problem with the Republicans. They are a united front because they are authoritarians. We have a broken system of government anyway. It’s easy for people to say, “Well, liberalism didn’t work; look at the economy!” But our system doesn’t allow the president to do what he wants. Obama had less than 7 months to do what he wanted. And he did great work! But since then, we haven’t had liberal governance; we’ve had a stalemate.
I don’t know what to do, other than to send college students down to Mississippi, because it really ought to be a blue state.
“Oh no Frank, you pick the movie, I have no taste but you do.” Which sounds like I am sucking up but it is true.
The self segregation of people is a massive problem. People only want to live with the people who generally agree with them. So unless we tell people to move like you suggest (and apparently some members of the libertarian party have been trying to do for NH), it is not going to change unless something very strange happens.
There is a fundamental problem for liberals: how do you get people to honor citizenship without becoming nationalistic. I have no idea, given that there will always be demagogues.
Duct tape? It is the answer to most things in life.
Given the context, that’s a very creepy suggestion!
You are right. I was having a discussion about twinkies and duct tape so that is what made me think of it.