Wednesday, November 17, 2010

Cutting Unemployment in A Fairyland with Perpetual Campaigns

A thoughtful article in the Post on the beginning of the 2012 campaign. This time the Fed is under attack for its efforts to use monetary policy to fight price deflation and high unemployment. This may not work the way the Fed intends but they have already reduced interest rates as far as they can and they are running out of ammunition. Unfortunately, political opportunists in the GOP have decided that they can cash in on their love affair with the growing segment of their base that hates government and particularly the "eastern elitists" in the Fed. Consequently, Fed bashing has substituted for rational debate. The Fed is required, by law, to manage price stability and to use its tools to encourage reasonable economic growth and full-employment. GOP leaders want to restrict the Fed's role to managing price stability. What they don't understand is that this is exactly what the Fed is doing when it attempts to prevent price deflation. Moreover, the only way they can fight price deflation is to use monetary policy to encourage economic growth and lower unemployment.

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