Use access key #2 to skip to page content.

Peter Schiff - The Duel over the Dual Mandate

Recs

12

November 24, 2010 – Comments (1)

Given the opposing views of the potentially parsimonious new Congress and the continuously accommodative Federal Reserve, there is a movement afoot among Republicans to eliminate the Fed’s “dual mandate.” Prior to 1977, the Fed only had one job: maintaining price stability. However, the stagflation of the 1970s inspired politicians to assign another task: promoting maximum employment. This “mission creep” has transformed the Fed from a monetary watchdog into an instrument of social policy. We would do well to give them back their original job.  

The imposition of the “dual mandate” was informed by the Keynesian belief that inflation and unemployment don’t mix. An economic concept known as the "Phillips curve" postulates that low levels of one cause high levels of the other. But, like many things in modern economics, the curve is a fiction. There is no real reason why low inflation would produce unemployment or full employment would create inflation. 

On paper, at least, the Fed has appeared to strike the balance that Congress demands. But this is a fool’s errand. The Fed’s dual mandate is the equivalent of asking a corporate CEO to maximize shareholder value by giving away as many free products as possible to consumers.

Full article

1 Comments – Post Your Own

#1) On November 24, 2010 at 11:59 AM, rfaramir (29.39) wrote:

"There is no real reason why low inflation would produce unemployment or full employment would create inflation."

Not in a sane economy or with a sane model. But Keynesians' push for high inflation does, in the short term, depress the real wages of labor, which helps businesses profits to return.

Two problems with that, though. 1) It gives in to union demands for higher or at least 'sticky' wages, when those wages ought to flex downward in a recession. The inflation forces them down by deception, which is the coward's way out of confronting labor honestly. 2) It is only short term. In the long term, labor (and everyone else) will take the inflation into account in their next contract and not just raise the bar but index for inflation. You're just running from the problems.

Just stop the inflation, already: End the Fed! 

Report this comment

Featured Broker Partners


Advertisement