Bush and Christie Tackle the Fed: Here’s A Killer App

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

Governors Bush and Christie recently were commended at ThePulse, here and here, for their astute leadership in raising the issue of the Fed’s role in causing the dearth of job creation, median family income stagnation, and the lack of income mobility.  There is a “killer app” by which this issue can be joined safely and powerfully.

There a healthy diversity of opinion within the GOP economic elites as to which “rule” the Fed should be following to optimize job creation and economic mobility for median income families.  That said, there is unanimity on the right that the Fed should be following a rule.  Some advocate for the “Taylor Rule,” others for “NGDP targeting,” and there is a significant support, including among public intellectuals such as Steve Forbes and George Gilder and academic economists such as Prof. Lawrence White, for the “Golden Rule.”

The presidential aspirants properly might consider it premature to take a position as to which rule is optimal.  They understandably might be hesitant to dive into controversial matter of the gold standard. (That said, a 2012 poll by Rasmussen strongly suggests that the gold standard holds dramatic, and unexploited, voter appeal among GOP base voters — conservatives and Tea Party members, especially, but also moderate Republicans — and also among African-Americans and labor union members, showing its general election appeal.)

The most high-powered and safest way to bring into the debate “the question the liberals don’t want to discuss” — as termed in an editorial by the New York Sun  — is to support the creation a monetary Commission.   Continue Reading

Why Did GDP Just Flatline Again?

A release by Rep. Kevin Brady (R-TX) on Wednesday noted:

Economy Off to a Sputtering Start in 2015

“Working families continue to suffer in the slow-growth Obama economy,” says House economic leader.

Washington, D.C. – U.S. Congressman Kevin Brady of Texas, the top House Republican on the Joint Economic Committee issued the following statement on the today’s release by Bureau of Economic Analysis (BEA) that real GDP grew at an annual rate of 0.2 percent during the 1st-quarter of 2015.

“This is a disappointing report. Working families continue to suffer in this slow-growth Obama economy, and now the President’s ‘growth gap’ is growing larger.  Our economy is now missing $1.7 trillion and 5.5 million more Americans would be back to work if the Obama recovery merely met the definition of average.”

“The substandard growth of the Obama recovery is a key factor in the disappointing job and paycheck growth.”

What’s wrong with our economy? According to author John Tamny in his recent book Popular Economics, there are four big factors in job creation and equitable prosperity: taxes, regulation, trade and money.  Neither taxes, regulations, nor trade explain the long downturn that began in 2001 and continues today.

Monetary policy is the big overlooked factor.  As I wrote in a review of Tamny’s excellent book published at RealClearMarkets.com:

Tamny especially impresses with the clarity around the matter of money, to which he devotes five full chapters. For example:

In The Wealth of Nations-the masterpiece that laid the groundwork for the rise of modern capitalism-Adam Smith observed that “the sole use of money is to circulate consumable goods.” That was a throwaway line, for no serious thinker had ever considered money as anything but a measure.

Continue Reading

Janet Yellen’s Pickle

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

Have you ever heard of a pickle?

I don’t mean what you put on a hamburger. I’m talking about one of the funniest sequences in baseball—when a base runner gets a little too aggressive and finds himself caught between two bases, running hopelessly back and forth as the basemen trap him on the base path and eventually tag him out.

That’s a pickle. And boy, Federal Reserve Chair Janet Yellen is in one heck of a pickle.

Peter Morici wrote an interesting piece in the Washington Times last week where he speculated that the Federal Reserve may choose not to raise rates in June. He also questioned whether it would ever be prudent to do so.

Morici has a point. There are serious long-term consequences to raising the interest rate. There are also serious long-term consequences to keeping it where it is now.

If we raise the rate, economic activity might slow, resulting in lower tax revenue for cash-strapped states like Illinois and debt-ridden nations like Spain. Higher interest rates would effectively raise their relative debt burdens by increasing their interest payments, quite possibly to levels that they would be unable to pay.

So why not keep the interest rate near zero like the Federal Reserve has been doing for years?

Well, there are serious long-term consequences to that, too. As I’ve covered in the past, near-zero interest rates may have played a huge role in wage stagnation and the rising cost of living. Continue Reading