Janet Yellen gave a widely noted speech
Perspectives on Inequality and Opportunity from the Survey of Consumer Finances at the Conference on Economic Opportunity and Inequality held by the Federal Reserve Bank of Boston on October 17
th.
The speech presented as a if ghostwritten for her by Quincy Magoo that beloved cartoon character described by Wikipedia as a wealthy short-statured retiree who gets into a series of comical situations as a result of his nearsightedness compounded by his stubborn refusal to admit the problem." What was most interesting was how political was the speech… and what Madame Yellen didnt say.
Her omission even raised an eyebrow of one of the commentariats most astute Fed sympathizers
The Washington Posts Ylan Q. Mui. Mui: Yellen did not address in her prepared text whether the Fed has contributed to inequality. Nor did she weigh in on whether it may actually be slowing down economic growth an idea that is gaining traction among economists but which remains controversial."
Yellens speech drew a public comment from the Hon. Steve Lonegan director of monetary policy for American Principles Project and project director of its sister organizations grass roots
FixTheDollar.com campaign (which I professionally advise):
There is a strong correlation between the post-war equitable prosperity to which Madam Yellen alluded and the post-war Bretton Woods gold-exchange standard. And there is a strong correlation between the increase in inequality under the Federal Reserve Note standard put into effect by President Richard Nixon to supplant Bretton Woods.
The monetary policy of the United States has a profound impact on wage growth and prices both domestically and internationally. Hence the importance of a thorough objective and empirical look at its policies from Bretton Woods through the era of stagflation the Great Moderation and the Little Dark Age" of the past decade.
That is why the Brady-Cornyn Centennial Monetary Commission and the Federal Reserve Transparency Act which recently passed the House with a massive bipartisan majority are critical steps forward to ending wage stagnation and helping workers and median income families begin to rise again. As President Kennedy once said Rising tide lifts all boats."
Madam Yellen addresses four factors in what she calls income and wealth inequality." Madame Yellen stipulates that Some degree of inequality in income and wealth of course would occur even with completely equal opportunity because variations in effort skill and luck will produce variations in outcomes. Indeed some variation in outcomes arguably contributes to economic growth because it creates incentives to work hard get an education save invest and undertake risk."
Even with that ostentatious stipulation the Fed Chairs speech is amplifying one of the Democratic Partys foremost election themes income inequality." The
New York Timess Neil Irwin
observed of this speech: Nothing about those statements would seem unusual coming from a left-leaning politician or any number of professional commentators. What makes them unusual is hearing them from the nations economist-in-chief who generally tries to steer as far away from contentious political debates as possible."
Her speech could be read as an Amen Corner to Elizabeth Warrens
stump speech on behalf of Sen. Al Frankens reelection effort that
The game is rigged and the
Republicans rigged it." Her speech could be read as a little election-season kiss blown to Sen. Franken (D-Mn) who voted for her confirmation and then
glowed on Madame Yellen very publicly.
One cringes at the thought that the Fed even might be giving the appearance of playing politics. To align the Fed even subtly with either partys election themes during an election season would seem a deeply impolitic and unwise violation of the Feds existential principle of political independence. House Financial Services Committee chair Jeb Hensarling and Sen. Mike Crapo (R-Id) should he accede to the chairmanship of the Senate Banking Committee might just wish to call up Madam Yellen for a public conversation about avoiding even the appearance of impropriety.
The Feds independence is as critical as it is delicate. To preserve it demands as much delicacy by the officials of the Federal Reserve System as by the Congress. As Barack Obama might say here is a teachable moment" for our new Fed chair.
Also troubling is the decision by the Chair to focus her mental energy and remarks on four areas entirely outside the Feds jurisdiction: resources available for children; higher education that families can afford; opportunities to build wealth through business ownership; and inheritances. These might be splendid areas for a presidents Council of Economic Advisors (which Madame Yellen chaired commendably under President Clinton). Good topics for a professor emerita at the University of California Berkeley Haas School of Business as is Madam Yellen.
They are however at best mere homilies from the leader of the worlds most powerful central bank. We would like to hear Madam Yellen talk about
monetary policy and its possible role in the diminishing of economic mobility. It does not seem like too much to ask.
Since Madame Yellen rightly is considered an eminent Keynesian (or Neo-Keynesian) why not begin with Keynes? In
The Economic Consequences of the Peace Chapter VI Keynes addressed this very point. The brilliant young Keynes was addressing the insidious power of inflation not now in evidence and not portended by the data. Yet let it be noted that there is more than one way to debauch a currency:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. … By this method they not only confiscate but they confiscate arbitrarily; and while the process impoverishes many it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls beyond their deserts and even beyond their expectations or desires become profiteers who are the object of the hatred of the bourgeoisie whom the inflationism has impoverished not less than of the proletariat. …
Lenin was certainly right. There is no subtler no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.
America and the world needs and rightly expects the chair of the Federal Reserve to be that one in a million able to diagnose. Madame Yellen is called upon to step up her game and pivot from pious homilies to the heart of the matter. If Keynes could call out how bad monetary policy can strike at confidence in the equity of the existing distribution of wealth" perhaps so too ought his followers.
What is to be done? Wikipedia also observes of Mr. Magoo that through uncanny streaks of luck the situation always seems to work itself out for him leaving him no worse than before." We devoutly hope that Madame Yellen and thus the economy will be the beneficiary of uncanny streaks of luck." Hope is not a strategy. Relying on luck tautologically is a dicey way of bringing America and the world to a renewed state of equitable prosperity.
Rely on luck? It really is time to shift gears. An obvious place for Madame Yellen to begin would be to register active support for the
Brady-Cornyn Centennial Monetary Commission designed to conduct a thorough empirical bipartisan study of what Fed policies have worked. What policies of the Federal Reserve have proven in practice or credibly portend to be conducive to equitable prosperity and healthy economic mobility?
Should the correlation between the (infelicitously stated if technically accurate) 40 years of narrowing inequality following the Great Depression" and the Bretton Woods gold-exchange standard be ignored? Why ignore this? Should the tight correlation of the most sustained rise in inequality since the 19th century" with the extended experiment in fiduciary dollar management be ignored? Why ignore that?
What might be learned from the successes of the Great Moderation inaugurated by Paul Volcker? Is Volckers
recent call for a rules-based" system a position from which Madam Yellen staunchly
dissents pertinent? Discuss.
Madame Yellen? Lets have a national conversation about monetary policy and its effects on economic mobility. It really is time to bring to a decisive end many decades of Magooonomics and the disorders that derive therefrom. Fire Magoo. Show the world that you are Keyness one in a million.
