Looking for Growth in All the Wrong Places

We’ve officially moved into the part of the campaign where candidates tell us their grand vision for America.  Donald Trump, moving on his promise to “make America great again,” challenged other Presidential candidates to put forward their ideas for helping workers and moving America forward.  Chris Christie and Jeb Bush obliged:

There’s a long way to go on the campaign trail — and many more policy details yet to emerge. Trump challenged his GOP competitors to lay out their job and business plans in a message on Facebook this week, although he himself has been thin on specifics, especially when it comes to the economy.

Bush has talked broadly about reforming regulation and taxes and enacting a balanced budget amendment.

Christie recently put out a 5-point plan to improve the economy. The factors include: lowering taxes, scaling back regulation, reforming energy (think: approving the Keystone XL pipeline and lifting the export ban on crude oil), making the R&D tax credit permanent and eliminate payroll taxes for those under 25 and over 62.

So far, it’s hard to make anyone’s math add up to 4%.

Yes, it is.  That’s because everyone’s proposals are missing a crucial component to get the economy moving again.  Taxes, regulations, and energy policy have all been done to death over the past 15 years, but that hasn’t stopped the economy from slowing to a 2 percent crawl, far less than the 3 to 4 percent we enjoyed in the ’80s and ’90s.  The only economic driver we haven’t tried yet is monetary policy. Continue Reading

Will Democrats Join the “Monetary Policy Olympics”?

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

From The Hill:

On July 29, the House Financial Services Committee met to vote on, among other bills, the Brady-Cornyn Centennial Monetary Commission Act, HR 2912.  This would charter a commission to make an empirical study of Fed policies and job creation, income mobility, economic growth, and other real world outcomes. The legislation passed committee along largely partisan lines.

Sound boring?  It’s not. Monetary policy, like the Great Moderation, is one of the key drivers of job creation.  And the commission, if enacted, will be the “Monetary Policy Olympics.”

Every Republican present voted aye.  Every Democrat voted nay, save Rep. John Delaney (D-Md.), an aye.  The Democrats’ vote presented a curious contrast to the hearty bi-partisan House support for the more stringent “Audit the Fed” legislation which passed the 113th Congress with majority Democratic support.  Delaney, by far the most distinguished, and accomplished, financial thinker in the House Democratic conference, was not committing political heresy.

The Democrats, except Delaney, now appear bipolar on the matter of the Fed. Over a hundred Democrats last year voted to audit the Fed.  Yet the Democratic conference proves resistant to the enactment of this commission, one far less intrusive to the Fed. So what are their stated objections?

Democrats have voiced three main objections.  Some have expressed concern that a commission would undermine the Fed’s independence. Several have expressed concern that the commission reflects the composition of Congress, providing more GOP than Democratic commissioners.  

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WaPo: House Bill Puts Fed Under New Scrutiny

The Marriner S. Eccles Federal Reserve Board Building (photo via Wikimedia Commons, CC BY-SA 3.0)

The Washington Post noticed the passage of the Centennial Monetary Commission through the House Financial Services committee, under the key leadership of Rep. Kevin Brady (R-TX):

Meanwhile, the Fed is facing renewed scrutiny in Congress. The House Financial Services committee on Wednesday passed a bill that would require the central bank to explain when it deviates from certain monetary policy models, disclose more information on salaries and allow for audits of the Fed’s decision-making process. Another bill sponsored by Texas Republican Rep. Kevin Brady would create a commission to examine the Fed, which recently celebrated its centennial.

‘The Fed is trying to do too much,’ Brady said in an interview. ‘It can be the right tool, but not for everything and everybody.’

Read more here.

Nick Arnold is a researcher for American Principles in Action.

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Watershed Moment: Centennial Monetary Commission Passes Key House Committee

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

Yesterday, the House Financial Services Committee passed Rep. Kevin Brady’s (R-TX) Centennial Monetary Commission, H.R. 2912, by a vote of 35 ayes to 22 nays and sent it on to the full House for consideration.  The bill, if enacted, would create an independent Commission to assess the performance of the American economy under the various Federal Reserve monetary regimes over its first 100 years of operation and proposals respecting other monetary rules.  The legislation charters the Commission to conduct hearings and to provide a report to Congress in December 2016.

According to a statement by Ralph Benko, APIA’s senior economics advisor and a regular contributor to The Pulse:

This could be a watershed moment in restoring job creation and income mobility to the American workers.  Good monetary policy is a key ingredient in allowing workers and working families to flourish.  We see this from the robust job creation under the Fed’s ‘Great Moderation’ during the Reagan and Clinton eras.  For the past 15 years, the American economy has stagnated at an average of less that 2% economic growth per year, less than half the pace of the post-recession Reagan economy and of the Clinton era economy.  There was no radical change in tax, spending, regulatory, nor trade policy 15 years ago.  The one major change in macroeconomic drivers was monetary policy.  The Commission is a way to make a meticulously neutral empirical assessment of what monetary policy is most conducive to creating a climate of equitable prosperity. 

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Brady-Cornyn Monetary Commission Reviewed in House Hearing

The Marriner S. Eccles Federal Reserve Board Building (photo via Wikimedia Commons, CC BY-SA 3.0)

On Thursday July 22nd, the Brady-Cornyn Centennial Monetary Commission was a subject of a House Monetary Policy Subcommittee hearing. The Centennial Monetary Commission Act of 2015 (HR 2912) was introduced by Rep. Kevin Brady (R-TX) just over a month ago and has quickly garnered the support of 29 House co-sponsors.  It has since been referred to the House Financial Services Committee.

The Centennial Monetary Commission was designed to “chart the territory” for the Federal Reserve by producing an empirical study of the impact of various Fed policies on the real economy over its first 100 years, and making recommendations to Congress.

The Subcommittee on Monetary Policy and Trade conducted hearings on July 22nd in which Prof. John Taylor of Stanford University, and  Dr. Paul H. Kupiec, Resident Scholar at American Enterprise Institute, both praised the Commission, and Dr. John Cochrane, senior fellow of Hoover Institution at Stanford University, stated: “It is wise for Congress and the Federal Reserve to rethink the fundamental structures under which the Fed operates.”

The Subcommittee issued a media release on the hearing quoting its chairman, Rep. Bill Huizinga, who said: “The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more important that reforms are necessary.”

The Centennial Monetary Commission proposed legislation in the 113th, and now 114th  Congress, which has drawn praise from American Principles in Action, Heritage Foundation, Cato Institute, Atlas Economic Research Foundation, and representatives from Hoover Institution and The American Enterprise Institute. Continue Reading

House Hearing on Fed, Monetary Commission In Progress

House Monetary Policy Subcommittee hearing in progress (photo credit: Ralph Benko)

Stop the presses!

APIA senior advisor, economics, Ralph Benko, and APIA’s Nick Arnold are attending a standing room only hearing of the House Monetary Policy Subcommittee this morning in the Rayburn House Office Building.

Stanford University economist Dr. John Taylor and AEI economist Dr. Paul Kupiec praised the proposed Brady-Cornyn Monetary Commission in their testimony.  Brookings’ economist Dr. Donald Kohn criticized it.

Republican members who spoke at the hearing so far seem favorably disposed to the Commission. Democratic members seem extremely hostile.

Full Committee Chairman Jeb Hensarling is sitting in, listening intently.

Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles in Action’s Senior Advisor, Economics. Continue Reading

Monetary Commission to Be Considered in House Hearing This Week

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

The House Subcommittee on Monetary Policy and Trade will hold a hearing, “Examining Federal Reserve Reform Proposals“, on July 22 at 10:00AM in 2128 Rayburn House Office Building.  APIA will be attending this hearing as an observer.

According to the official memorandum to Committee Members, along with proposed legislation for Federal Reserve accountability and transparency the Subcommittee will be giving consideration to:

H.R. 2912: the “Centennial Monetary Commission Act of 2015”

Introduced by Representative Brady of Texas, H.R. 2912, the “Centennial Monetary Commission Act of 2015” establishes the Centennial Monetary Commission to study monetary policy including, among other topics, (1) the historical monetary policy of the Federal Reserve; (2) the various operational regimes under which the Federal Reserve may conduct monetary policy; (3) the use of macro-prudential supervision and regulation as a tool of monetary policy; and (4) the Lender-of-Last-Resort function. The Commission is also charged with recommending a course of United States monetary policy going forward and must report to Congress with its findings, conclusions, and recommendations by December 1, 2016.

The Commission has 12 voting members – six appointed by the Speaker of the House and six by the President Pro Tempore of the Senate – and two non-voting members. Of the non-voting members, one is appointed by the Secretary of the Treasury and the other, who must be a president of a Federal Reserve Bank, is appointed by the Chair of the Federal Reserve.

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Mr. Robot: “Money hasn’t been real since we got off the gold standard.”

“Money hasn’t been real since we got off the gold standard. It’s become virtual software. The operating system of our world. And we are on the verge of taking down this virtual reality.”  So says Mr. Robot, played by Christian Slater, in Mr. Robot, a new techno-thriller TV series that premiered last week on the USA Network.

Mr. Robot is described by Gizmodo as:

Imagine a show that combines the anti-corporate craziness of Fight Club with the subversive hacker heroism of The Matrix. Add some great acting, and a fascinating conspiracy that’s unfolding in the hazy realm between our dystopian nightmares and hard reality. That’s Mr. Robot….

A brief mention mention in pop culture falls into the “one swallow doth not a summer make.” Perhaps there will be a resurgence of popular interest in the woes that were and are caused by America’s official departure from the gold standard in 1971.  High time.

These woes were presciently predicted by Keynes (writing, in 1919, about inflation, and himself, later, a powerful foe of the deformed version of the gold standard extant in his day which he properly called a “barbarous relic.”)  Keynes, in The Economic Consequences of the Peace:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.

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Zero Interest Rates and Uncharted Territory

Federal Reserve Chair Janet Yellen (photo credit: International Monetary Fund via Flickr, CC BY-NC-ND 2.0)

At her June 17th press conference, Fed Chair Janet Yellen stated:

Returning to monetary policy, as I noted, the Committee reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate.  As we said in our statement, the decision to raise the target range will depend on our assessment of realized and expected progress toward our objectives of maximum employment and 2 percent inflation.

There obviously is nothing wrong with the Fed’s objectives of maximum employment and minimum inflation.  God, however, as Mies van der Rohe once said, is in the details. What to do?  It has been astutely noted that the Fed is in “uncharted territory.”

As the FT wrote on April 17th of this year, in a piece headlined “Federal Reserve and Treasury market face uncharted territory”:

The task of lifting interest rates from near-zero levels — when it finally happens — will be an unprecedented one for the US Federal Reserve. Never before has the central bank been faced with the challenge of starting to unwind such a vast amount of stimulus.

But venturing into uncharted territory does not stop there. Profound changes in the composition of financial markets — and in the menagerie of players operating in them — will make this a very different operation from when the Fed completed its previous interest rate tightening cycle in 2006.

It makes as little sense to have our shamans and pundits, rather than the Fed’s shamans and pundits, trying to get monetary right by guesswork … when none of the experts, ours or theirs, have a map. Continue Reading

How Jeb Bush Can Deliver On His Promise of Four Percent Growth

Former Florida Gov. Jeb Bush (photo credit: iprimages via Flickr, CC BY-ND 2.0)

Jeb Bush showed real presidential-level leadership in his formal 2016 presidential candidacy announcement, promising the delivery of a four percent economic growth rate:

There is not a reason in the world why we cannot grow at a rate of four percent a year.

And that will be my goal as president—four percent growth, and the 19 million new jobs that come with it.

As Neil Irwin from the New York Times notes in a blog post, “That Will Be Hard to Reach.” He predicts that such growth would be difficult to sustain “…absent a remarkable, rapid upward shift in the nation’s productive capacity.”

An article from Slate comments on Bush’s statement with skepticism, reasoning that, in reference to labor supply and worker productivity, “neither of these forces is working in America’s favor.”

The Wall Street Journal uses similar math to analyze the difficulty of achieving four percent growth, taking the requirements to be “reversing long-running trends in population, job participation and worker productivity.”

Ronald Reagan’s promises of high growth were received with similar skepticism. To achieve his vision, Reagan buckled down on inflation and led the nation out of a short recession and into soaring growth and job creation.

An article from Financial Times Alphaville sees Jeb Bush’s goal more optimistically, even suggesting that “[i]f anything, Bush may be aiming too low.”

Jeb Bush recently called out an under-recognized cause of a sluggish economy—bad monetary policy at the Fed:

…you can make a case that in the last few years, given our monetary policy, that we’ve been manipulating our currency.

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