Dual-mandate Musings

I really just wanted an excuse to post this picture.

There seemed to be somewhat of a wonk-consensus on Federal Reserve Ben Bernanke’s appearance before Congress last week, which followed a less-than-stellar FOMC meeting. More than just the perpetual non-partisan disappointment in the Fed doing too little to fulfill it’s second mandate of full employment, it struck everyone that partisan reactions have been entirely unequal:

Republicans on the committee pressed repeatedly for Mr. Bernanke to make a clear commitment that the Fed would take no further action to stimulate growth.

“I wish you would look the markets in the eye and say that the Fed has done too much,” Representative Kevin Brady of Texas told Mr. Bernanke.

Democrats, by contrast, inquired politely after the Fed’s plans and showed surprisingly little interest in urging the Fed to expand its efforts.

Representative Carolyn B. Maloney, a New York Democrat, made the nearest approach, calling on the Fed to act forcefully, but she did not ask Mr. Bernanke to commit to such a course of action, nor to explain why he has not done so.

With Republicans we oft hear the equivalent of “Your loose-money, monetary-philandering ways has been unconscionable in the face of assured hyper-inflation.” Democrats on the other hand have been busy focusing on the Fed as bank regulator and more recently, Jaime Dimon – a bit like being off in their own special little pasture of discontent that has important policy implications. With little to no political pressure to pursue greater employment, all Bernanke hears are conservatives telling him to tighten up “or else.”

As Matt Yglesias notes, even the non-conservative illuminati seems to be ignoring the relative importance of (inadequate) monetary policy:

It’s just not Democrats on the Hill who are ignoring the truly critical matter of Fed policies. As the annual Netroots Nation conference this weekend in Providence, R.I., attendees were all-too-aware that the weak economy is the biggest short-term threat to their larger political project. At the same time, they remained woefully uninterested in the subject of monetary policy, the main tool the government can use to boost the labor market. Instead, the economic policy discussion among progressives remains fixated on the politically impossible and substantively inadequate concept of fiscal stimulus. A Saturday-morning high-profile economic policy roundtable featuring Paul Krugman, AFL-CIO chairman Richard Trumka, and progressive think tankers Heather McGhee and Erica Payne drove this blind-spot home. The Federal Reserve was discussed only glancingly, and even that segment myopically focused on Dimon’s New York Federal Reserve role.

So the Democrats are focusing on Dimon, left-leaning policy players are thinking of ways to pursue fiscal expansion and everyone except Ron Paul is ignoring the monetary-elephant in the room.

This is problem. The Fed has been reticent to address mass unemployment since QE2 because inflation hawks on the Board of Governors worry about runaway price increases that are not otherwise expected. While some could imagine a Ben Bernanke secretly desiring to do more, the Fed is functionally operating on a credo of “crucifying mankind upon a cross of 2 percent inflation targeting.” Which is to say that the Fed could provide a monetary punch (well above what Congress can do) that could employ lots of people, but isn’t doing so on the premise that it’s better for the unemployed to pay less for gas and eggs than have a job.


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