Dave Pinsen asks in the comments:
One question for you Steve, since you've implicated this clique in our ongoing economic malaise: given the constraints of the Fed (e.g., its dual mandate to promote economic growth and maximize employment, and its inability to address economic problems not associated with monetary policy, such as unchecked immigration, naive trade deals, poor fiscal policy, etc.), what would you have preferred it did differently over the last several years?
I don't talk about macroeconomics a lot anymore. I spent a fair amount of time in the 1970s and 1980s thinking about macroeconomics, but ultimately I didn't notice that I had a comparative advantage in that field.
Perhaps when I was 21 my views on current macroeconomic policy were more correct than, say, Stanley Fischer's, who was 36 at the time (here's a long 2001 interview with Fischer on how his views have evolved toward the right), but if so, that would have been sheer blind luck on my part. (Fischer's disadvantage was that he started out as a child in the Habonim socialist-Zionist youth movement, spending six months at an impressionable age on a kibbutz in Israel, so he had a lot to unlearn.)
As the decades went by, I didn't notice that I had all that much to contribute to understanding macroeconomics.
So, today, I focus on simpler topics that don't attract much attention, such as conflicts of interest among the great and the good. The concept of conflict of interest is a very useful one, but one that the conflicted have largely lost interest in.
Dr. Fischer's career, for example, features a number of interesting conflicts of interest, but we are being told that those should be of no interest to us because he is the world's greatest macroeconomist, according to other great macroeconomists, who are his friends, students, bosses, and so forth. How do we know they are great macroeconomists? Because they are his bosses, students, and friends. The world's greatest macroeconomist wouldn't have friends, bosses, and students who aren't great macroeconomists, right?
I'm really not capable of assessing just how valuable Fischer's macroeconomic policymaking skills are, so perhaps that's why I am skeptical that they make up for his manifest conflicts of interest: I'm not smart enough to be confident that the macroeconomic magic that Dr. Fischer will conjure up will do us so so much good that his conflicts of interest are a negligible price to pay.
More importantly, exceptions rapidly become rules.
More importantly, exceptions rapidly become rules.
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35 comments:
Fed could have controlled the tech bubble and the housing bubble but only encouraged things until things got crazy.
From controversial to incontrovertible.
Fed is like the coach-wagon-eer.
If the horses go too slow, he needs to crack the whip a bit. If the horses charge too fast, he needs to slow them down.
For some reason, Greenspan and Bernanke kept cracking the whip when the horses were charging full speed ahead.
Maybe the problem is partly that economists came to be seen as superstars with yodalike ayn randian powers.
Possibly, Keynes was the first superstar of the 20th century.
He was seen not only as a useful adviser but as a genius, a savior, the guru.
And then Friedman was the next big superstar. Galbraith once held such status too but essentially as mini-me of Keynes.
Greenspan once worshiped Rand and maybe saw himself as a great man.
The danger was that the fed chairman went from like a big-time accountant/banker(with essentially a cautious and sober outlook) to a superstar revered, praised, schmoozed, and celebrate as the master builder of the new era.
Thus, when the economy got overheated, Greenspan should have acted more quickly but he just loved to bask in all the attention he was getting as the grand designer of the fast booming economy.
I would tell Dave Pinsen what the Fed could have done differently:
Stop printing money. Every dollar they print steals from every other person who owns a dollar. Currency debasement, which is their stock in trade has destroyed many nations. It is in the process of destroying ours.
Let the market set the interest rates. When they set short term rates at zero, they steal from savers the interest payments that are rightfully theirs.
Don't print up funny money and give it to big banks. Ben B. produced at least $16 trillion in 2008. Who knows where it all went? The ability to create five times the Federal budget out of thin air shows that our elected government is a sham, and it violates my right to representative government. In a so-called democracy, no unelected official should be able to print $16 trillion and hand it out to his friends.
Stop lying about the inflation rate. The Fed could use its influence to get the BLS to produce honest inflation data. They have chosen not to.
Stop market manipulations of every
kind. No Plunge Protection Team. No gold market manipulation. In a free country, market decisions are decided by free people, in a forum where every dollar represents one vote. The Fed needs to stop interfering with market decisions made by free people.
Use its influence to stop the Federal government from borrowing, instead of encouraging a spendthrift government to borrow more. The Fed's actions have helped make debt slaves of all of America's young people.
Stop lying to the people about not knowing there was a real estate bubble and not knowing that the Fed's actions produce asset bubbles.
Produce an honest set of accounting statements and allow them to be examined by outside auditors.
What we are looking at here is a small circle of insiders who control INFINITE FIAT. Americans have given a group of people who have no sense of moral behavior a license to print unlimited money and to distribute it with no accountability.
Until these people are thrown out, Americans will continue to get poorer and poorer each year due to the actions of these money printers and market manipulators.
http://www.nytimes.com/2014/01/15/us/federal-judge-rejects-oklahomas-gay-marriage-ban.html
Judge-packers.
Remember how we were told that Elena Kagan is a "genius", "brilliant", etc.?
For future Steve Sailers out there, it shouldn't be that hard to develop an advantage in thinking about macroeconomics relative the competitors. Among professional economists there's a remarkable degree of corruption, group thinking, incompetence, pretensions of genius, and lack of accountability from the media. If you look at Greenspan, Bernanke, Summers, Yellen, and Fischer, failing to warn of the huge housing bubble that wrecked the economy is almost a prerequisite for a high-level position.
The blogosphere and journalistic competition also isn't very formidable. Dean Baker's Beat the Press does a good job of ridiculing the conventional stupidity, but only gets a handful of comments a day. But the left readership is dominated by Krugman, who won't go near uncomfortable topics. There's also a large crowd of libertarian cultists treating the field as a deductive moral science, and Austrians with egg on their face after crying wolf for years that QE and deficits would spike interest rates and inflation. Even handed and quantitatively skilled people like Steve should be able to jump near the front of the pack.
Despite its prominence in the basic macroeconomic equations, the trade deficit is simply not mentioned in the media any more (why?). And our Asian trading partners are deliberately mercantilist, collecting our Treasuries so that their currencies don't rise against the dollar. So the only way to make up the difference in domestic demand is through government deficit spending.
The U.S. continues to lose domestic industry and know-how. People close to the flow of Treasuries (our main export) like Wall Street, favored tech stocks, and government contractors get rich while the rest of the economy stagnates.
It's all very stable until it's not. Once our Asian trading partners decide that they have a strong enough domestic demand, and are tired of competing against a strong dollar for energy and commodities, they will pull the plug, and our standard of living will fall very quickly as the price of imports goes through the roof.
"Fed could have controlled the tech bubble and the housing bubble but only encouraged things until things got crazy."
With respect to stock bubbles like the tech bubble, interest rates are sort of a blunt instrument, but the Fed has a more precise tool in its tool box called Regulation T, which controls the level of margin debt allowed in brokerage accounts. It's been set at 50% since before the flood. On my old blog several years ago I wondered why Greenspan didn't make speculators throttle back on their use of margin back when he worried about "irrational exuberance".
I also made another point there, about the potential of countercyclical regulation, which has broader implications to Steve's recent posts, so I'll expand on it a bit here. If you can set up intelligent, counter-cyclical policies (e.g., Chile's stabilization fund, designed to smooth out the feast-or-famine cycles of its major export commodity), you have less need for real time witch doctoring, because you've buffered yourself ahead of time from booms and and busts. And less seat-of-the-pants witch doctoring could mean fewer potential conflicts of interest for witch doctors.
Is this the fourteenth post related to Stanley Fisher? Not that I mind, but this is the type of coverage you'd only expect for the likes of Paul Walker.
wiseguy
Is this the fourteenth post related to Stanley Fisher?
Yep. Feels like Steve decided to "try to make a difference". At the very least, the Stan Fischer Marathon might give a glimpse into who reads Steve and the limits of his influence.
Look, it's simple: you goyim, I mean, we Americans just have to recognize the truth and stop chasing chimeras. It's the international elite who are behind mass looting and mass immigration. 'Coz they HATE HATE HATE ordinary whites. It's nothing to do with a tiny ethnic group with little influence anywhere in the world. Especially not in Israel. Not that I have any interest in the place or in defending the tiny ethnic group with little influence. I don't belong to it and I've never even heard of Israel.
Trust me -- I'm Scotch-Irish.
Looks like Attorney Pinsen made the proverbial error with that question.
Superstar chairmen of the fed were an inevitability. Attraction to charismatic leaders is a fundamental feature of social organization in the national / ethnic / racial / religious set that governs America in the 21st century — apparent as much among religious fundamentalists as among political radicals or elite intellectuals.
What Jeff W. said.
I'd add, this is the impetus behind mass immigration. Our economy is so leveraged, that's the only way it doesn't all go kabloo-ie.
Which, BTW, is exactly what almost happened in 2008: the whole rotten structure almost went kabloo-ie. Next time, I don't think they'll be able to put enough zero's to the left of the decimal.
All of which should serve to point out: macroeconomics is bullshit. It's mathematicians using aggregated numbers to generate complicated models on their computers. The purpose of these models is to find some high-sounding justification that the rubes can't question for printing money and buying your own debt with it. That's all it is.
It's like the models that 'climate scientists' build which tell them there is no Antarctic ice shelf. And these guys will literally pilot a ship until it gets stuck in 20 miles of sea ice that their models told them wasn't there.
In other words, Steve, you have no idea what to do.
Not wishing to pontificate too much on the subject of 'macroeconomics' it's well worth remembering that, basically, the only show in town these days, economics wise, is China.
China grows and grows. Stronger an stronger. It's now the world's biggest trader and in the coming decades will simply eclipse the west.
- And they did it all in direct contravention of the so-called 'golden-rule book' that Fischer and his chums have pushed on the west. They would have fits if they were involved in running Chinese policy "No, no, no not like that!!!", they would scream.
Yup, it's funny that nation that did follow the play-book,(Russia), to the letter, was reduced to beggary very rapidly, and the folks who played by their own rules and own instincts, eschewing the dogma wound up on top.
Just a little morsel of real world observation, rather than the pomposity and bombast the Harvard MIT gang like to clothe themselves in.
+1000 to Jeff's above comment.
I haven't read much of the guy, but I think one of Mises's main insights is that economics, at the macro level, suffers from an unsolvable epistemological problem. We cannot know what others will do since their decisions are based on so many factors other than price. Thus agencies like the Fed, if they should exist at all, should act in the most conservative manner possible (e.g. protect the dollar, period). I believe this was the idea for a while. But now the Fed is expected to manage the entire global economy. It's still shocking to me that educated people believe this is possible. Why Fischer should get the job is or not is beyond me. I'd feel more comfortable with last year's Vegas Hold 'Em champ at the helm, honestly.
"...and Austrians with egg on their face after crying wolf for years that QE and deficits would spike interest rates and inflation."
Two words: "excess reserves". And why are interest rates on 30 yr mortgages now 4.65% and not 3.5%?
The cartel has tried to destroy the Austrians via hammering gold & silver, but we'll see how long this rickety wagon can continue down the track.
"since you've implicated this clique in our ongoing economic malaise: given the constraints of the Fed...what would you have preferred it did differently over the last several years?"
There is a long list of things starting with the Greenspan Put but the question frames the power relationship the wrong way round.
The Fed is a kind of janitor for the banking cartel - they refill the water coolers and sweep up the mess the banksters make at the behest of the banksters.
Fischer is a janitor.
The significance of Fischer's appointment is in how blatant the banking cartel has become in the exercise of their executive power over the nominal government.
Carney's appointment to the BoE is in a similar vein.
"For some reason, Greenspan and Bernanke kept cracking the whip when the horses were charging full speed ahead."
Mass immigration creates a hidden deflationary spiral through its effect on incomes.
The deflationary effect of the 1965 immigration act was hidden for a time by the huge productivity gains from computerization.
As computerization rolled out and the gains started to taper off the immigration deflation started to hit.
Greenspan and Bernanke's actions (or the actions decided for them by the banking cartel) staved off the immigration death spiral with cheap credit.
Now we have both the immigration death spiral and the cheap credit death spiral.
@Chief Seattle
"Despite its prominence in the basic macroeconomic equations, the trade deficit is simply not mentioned in the media any more (why?)"
Because it undercuts the entirety of the globalist nonsense we're fed 24/7.
.
"Once our Asian trading partners decide that they have a strong enough domestic demand, and are tired of competing against a strong dollar for energy and commodities, they will pull the plug, and our standard of living will fall very quickly as the price of imports goes through the roof."
Yup.
@Dave Pinsen
"With respect to stock bubbles like the tech bubble, interest rates are sort of a blunt instrument...I wondered why Greenspan didn't make speculators throttle back on their use of margin back when he worried about "irrational exuberance".
Or the capital ratio.
They didn't (imo) because they needed to inflate to counter the immigration deflation - doing so gave them another thirty years of looting.
doing so gave them another thirty years of looting...
All of modern economics (and politics) is based on Keynes's maxim that in the long run we are all dead. If you are a politician and you can kick the can down the road 30 years, as far as you are concerned that is as good as a perfect solution. Guys like Fischer are not stupid - they know that they are applying patches to the patches to the patches but they feel that this is better than swallowing the bitter medicine now.
K
At first Sailer's focus on Fischer might seem trivial. I mean it is not like the Fed has ever gone against American interests in favor of another country...except that one time in the 20's when the Fed chairman's tie to his British counterpart and financial interests led to a small financial crisis you may remember as the Wall Street Crash:
"But a more indirect and ultimately more important motivation for Benjamin Strong's inflationary credit policies in the 1920s was his view that it was vitally important to "help England," even at American expense. Thus, in the spring of 1928, his assistant noted Strong's displeasure at the American public's outcry against the "speculative excesses" of the stock market."
"The public didn't realize, Strong thought, that "we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis." An unexceptionable statement, provided that we clear up some euphemisms. For the "decision" was taken by Strong in camera, without the knowledge or participation of the American people; the decision was to inflate money and credit, and it was done not to help the "rest of the world" but to help sustain Britain's unsound and inflationary policies."
"The result was inflationary credit, a speculative boom that could not last, and the Great Crash whose 50th anniversary we observe this year. After Strong's death in late 1928, the new Federal Reserve authorities, while confused on many issues, were no longer consistent servitors of Britain and the Morgans. The deliberate and consistent policy of inflation came to an end, and a corrective depression soon arrived."
http://mises.org/daily/3866/
In case you're thinking that this is merely the ramblings of crazy Austrians, take a look at establishment historian Paul Johnson on this episode:
http://books.google.dk/books?id=LVGqAAAAQBAJ&pg=RA4-PA1924&lpg=RA4-PA1924&dq=%22paul+johnson%22+montagu+norman+benjamin+strong&source=bl&ots=xhtTEskaip&sig=lLU34Jv-GTIrSDkZpbt18yO6hJY&hl=da&sa=X&ei=RfXWUsn0GcSh4gTE1IHgAg&redir_esc=y#v=onepage&q=%22paul%20johnson%22%20montagu%20norman%20benjamin%20strong&f=false
Gulf War and the Golf War
it never ends.
"Anonymous said...
The Fed is a kind of janitor for the banking cartel - they refill the water coolers and sweep up the mess the banksters make at the behest of the banksters."
The Fed does more than that. It creates money out of thin air and gives it to banks. And in so doing it redistributes the nation's wealth to the wealthy.
"The Fed does more than that. It creates money out of thin air and gives it to banks. And in so doing it redistributes the nation's wealth to the wealthy."
The point I was trying to make is the Fed doesn't decide anything. The cartel of banks that created the Fed makes those decisions. The Fed chairman is their janitor.
"But a more indirect and ultimately more important motivation for Benjamin Strong's inflationary credit policies in the 1920s was his view that it was vitally important to "help England,"
...
the decision was to inflate money and credit, and it was done not to help the "rest of the world" but to help sustain Britain's unsound and inflationary policies."
Not England or Britain - the banks.
The banking cartel are international with Wall St. and the City of London as the two main hives (with Hong Kong probably replacing London as No. 2).
The same thing happened in 2008 with Bernanke creating trillions of dollars in thin air as soft loans to banks all over Europe.
Frankly, the older I get the less interest I have in "macro-economics". I believe it is simply a way to cook the books and explain away the reasons why doing things that are obviously horribly stupid on a micro-economics level actually works. Because the economists said it is different.
No doubt that bankers mean a lot but they are not everything when it comes to central banks.
A central bank helps two classes of people. Bankers and politicians. Bankers almost never lose except at the behest of a bigger bank.Powerful politicians can also influence central banking. Witness the relationship between Arthur Burns and Richard Nixon which had little to do with banker influence yet the consequence was a big inflation to help Nixon's reelection.
Likewise Churchil's decision to restore the pound to gold at pre-WWI value led to Britain needing to push America to inflate to help sustain the monetary system. This was done because of prestige, pressure from the City, but also because unions and the welfare state made sure to make wage and price adjustments rigid downwardly. In effect Keynes was right in 1936 but not because Say's law was wrong but because it was politically unteneable to let the market correct. It is not all about bankers but they obviously play a big role but you're mistaken to assume that everything can be explained through this prism.
"Anonymous said...
The point I was trying to make is the Fed doesn't decide anything. The cartel of banks that created the Fed makes those decisions. The Fed chairman is their janitor."
I misunderstood you, then. Yes, I would agree - it is the cartel that likely calls the shots.
The main thing to understand about macroeconomics is that it's the part of economics that economists least understand. Some are brave enough to admit it, but many more, it seems to me, love to cavalierly press on as though they know it all.
"I misunderstood you, then. Yes, I would agree - it is the cartel that likely calls the shots."
No, I didn't explain what I meant very well.
"Frontman" may have been a better word to use than Janitor.
The critical aspect of the appointment is how blatant the banking cartel are now when it comes to showing who runs America and who they're running it for.
.
"The main thing to understand about macroeconomics is that it's the part of economics that economists least understand. Some are brave enough to admit it, but many more, it seems to me, love to cavalierly press on as though they know it all."
Macro-economics is perfectly simple. It's the impossibility of collecting and collating the data that makes it 99% guesswork.
Of course the biggest factor in making it simple is realizing the banking system is organized crime. Once you get that the rest falls into place.
"that makes it 99% guesswork."
that makes *applying* it 99% guesswork.
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