Here, Marc Sumerlin argues that the Fed's dual mandate is not really a problem. He is right. First, the Fed has a triple mandate. Second, the Fed's so-called "dual" mandate is not a problem, because the real problem is that the Fed has a discretionary mandate at all.
Here are the Fed's official instructions from Congress: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
Anyone who can count will note that the specific words of Congress that authorize the Fed to do anything at all, stipulate three, not two, goals for the Fed. (1) maximum employment, (2) stable prices, and (3) moderate long-term interest rates. Yes, that's three, not two "mandates."
You may want to note that Congress also stipulated how the Fed is to pursue its three goals; notably, by "maintain(ing) long run growth of monetary and credit aggregates commensurate with the economy's long run potential to increase production." Of course, the Fed ignores this particular set of instructions from Congress. Instead of keeping the growth rate of monetary aggregates about equal to the long-term growth rate of the economy, the Fed manipulates interest rates.
So why does Mr. Sumerlin talk about a dual mandate? That's because the Fed itself has convinced lots of folks (including way too many card carrying economists) that the third goal is not really a goal. Instead, interest rates are a monetary policy "tool," according to the Fed and all its apologetic economist supporters.
You see, the Fed wants everyone to ignore that interest rates are really prices. Most economists understand that interest rates are rental prices of using someone else's money. The Fed wants us all to believe instead that interest rates are really nothing more than a monetary policy tool for the Fed to manipulate.
Students of ECON 101 understand the problems with government manipulating prices instead of leaving the determination of prices up to voluntary exchange in markets. Let's not rehearse all that here and now, at the risk of putting most readers straight to sleep, but you could look it up easily enough, if you're interested.
Milton Friedman, who was arguably the brightest economist of the 20th Century (if not of all time out of mind), explained with clarity, logic, and history just why a Fed that pursues discretionary monetary policy of any sort at all --- never mind what the Fed's congressional "mandate" is said to be --- will end up destabilizing financial markets and the economy. Read a summary of the results of discretionary monetary policy here. Milton Friedman wrote much more on the topic, if you're interested; Google it.
Manipulating monetary aggregates and interest rates at will, which is exactly what the Fed does, is not the path to economic prosperity or stability. Sadly enough, discretionary manipulation of monetary aggregates and interest rates causes economic booms and busts. Read about it here.
Do you really think that giving seven people (the board of governors of the Federal Reserve) discretionary control over how many U.S. dollars exist is a good idea? Milton Friedman didn't think so, and neither do I. What I think isn't important, but to ignore Milton Friedman's analysis is arrogant lunacy.
Here are the Fed's official instructions from Congress: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
Anyone who can count will note that the specific words of Congress that authorize the Fed to do anything at all, stipulate three, not two, goals for the Fed. (1) maximum employment, (2) stable prices, and (3) moderate long-term interest rates. Yes, that's three, not two "mandates."
You may want to note that Congress also stipulated how the Fed is to pursue its three goals; notably, by "maintain(ing) long run growth of monetary and credit aggregates commensurate with the economy's long run potential to increase production." Of course, the Fed ignores this particular set of instructions from Congress. Instead of keeping the growth rate of monetary aggregates about equal to the long-term growth rate of the economy, the Fed manipulates interest rates.
So why does Mr. Sumerlin talk about a dual mandate? That's because the Fed itself has convinced lots of folks (including way too many card carrying economists) that the third goal is not really a goal. Instead, interest rates are a monetary policy "tool," according to the Fed and all its apologetic economist supporters.
You see, the Fed wants everyone to ignore that interest rates are really prices. Most economists understand that interest rates are rental prices of using someone else's money. The Fed wants us all to believe instead that interest rates are really nothing more than a monetary policy tool for the Fed to manipulate.
Students of ECON 101 understand the problems with government manipulating prices instead of leaving the determination of prices up to voluntary exchange in markets. Let's not rehearse all that here and now, at the risk of putting most readers straight to sleep, but you could look it up easily enough, if you're interested.
Milton Friedman, who was arguably the brightest economist of the 20th Century (if not of all time out of mind), explained with clarity, logic, and history just why a Fed that pursues discretionary monetary policy of any sort at all --- never mind what the Fed's congressional "mandate" is said to be --- will end up destabilizing financial markets and the economy. Read a summary of the results of discretionary monetary policy here. Milton Friedman wrote much more on the topic, if you're interested; Google it.
Manipulating monetary aggregates and interest rates at will, which is exactly what the Fed does, is not the path to economic prosperity or stability. Sadly enough, discretionary manipulation of monetary aggregates and interest rates causes economic booms and busts. Read about it here.
Do you really think that giving seven people (the board of governors of the Federal Reserve) discretionary control over how many U.S. dollars exist is a good idea? Milton Friedman didn't think so, and neither do I. What I think isn't important, but to ignore Milton Friedman's analysis is arrogant lunacy.
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