The Dallas Fed distributes a bi-monthly publication called Southwest Economy. Opening the latest one to appear in my mailbox, for January/February 2006, I began to read the “President’s Perspective,” by the bank’s president Richard W. Fisher, on p. 2. After a couple foggy paragraphs about globalization, its effects, and the new questions it supposedly raises, the statement lists several such questions.
The first one is, “Does declining U.S. unemployment still fuel inflation in a world of abundant production capacity?” I was stunned. It seems that, for the Dallas Fed job, Mr. Fisher has been obtained from a deep cavern underneath MIT, where he has been in a coma since 1965 (not that, even then, anybody had a good excuse for believing such nonsense).
In a nation with a central bank, the blind lead the deluded.
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Fisher: “Does declining U.S. unemployment still fuel inflation in a world of abundant production capacity?”
Robert,
You were stunned by this comment? Surely you jest. The folks at the fed are paid to think and speak in this ignorant and foolish way. It keeps the masses ignorant and foolish. Hell’s bells, it even keeps congress and the executive ignorant and foolish, not that they’d have it any other way.
It does not keep the foolish, it allows them to rationalize their policies. Most people do not care, or they glaze over, at the mention of the Fed.; so people appeal to authority on the issue. When the authority on the issue of the Fed, monetary policy, etc. has a convenient excuse (like inane commentary from Dick “Eighth Inning” Fisher) to support their policies, people allow themselves to be mislead. After all, ignorance is bliss (until you don’t have a pot to …)
I you want to fill a clown position, you have to hire a clown. If you hire a mortician, the job isn’t going to get done.
If you want a central banker, you need someone who believes in central banking.
In a way, I suppose he’s right. If unemployment is declining it is because of the massive growth of jobs in the government sector, in government-regulated sectors (such as health-care) and in over-stimulated sectors of the private economy (such as housing). The money to pay these government drones has to be freshly printed, therefore (if you turn the binoculars around), declining US unemployment is fueling inflation.
This is what I have concluded is the operational mode of virtually all “establishment” economists: making factually defensible but disingenuous statements designed to enhance their position by soothing the public and sucking up to their bosses.
In Britian they are still teaching the basic doctrines of Lord Keynes – rising inflation (by which they mean a rising level of increases in the “price level”) can only come about if “unemployed resources” (by which they normally mean unemployed people) are at a low level (although they are no longer drawing various versions of the Phillips Curve).
They (the academics and the politicians and media people they produce) are, of course, uninterested in the logic of economic law.
As for empirical (Chicago school) stuff?
They just explain it away. Rising unemployment and rising inflation (in their sense of the term) AT THE SAME TIME in the Britain of the 1970′s? Simple, the “oil shock” of 1973.
Of course inflation had already risen to such a level that it was used as an excuse for price controls in the United States in 1971 and in Britain in 1972 – but they blank that out of their minds.
Govt employees produce services. The only issue should be to determine if there is a more efficient method to solve the problem.
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