Thursday, September 13, 2012

George Will Invokes The Confidence Fairy And The Threat Of Inflation Against Fed Policy

Its time to post another of George Will's syndicated columns.  In this article he tells us that business is not hiring or spending its retained earnings because of uncertainty created by Fed policy and by the Obama administration.  Apparently, they would not even invest in capacity if they were unable to satisfy demand for their products and services.  Most economists believe that business confidence would be restored quickly if more orders were in their pipeline.

Most of the article was devoted to a critique of the Federal Reserve.  The Fed has a dual mandate to achieve price stability and employment stability.  George Will is true believer in the myth of free markets.  He does not want the government to interfere with the operation of oligopolistic capitalism, which he recognizes as the free market.  In particular, he does not want the Fed to do another round of quantitative easing which might increase employment.  There is division within the Fed about the effectiveness of another round of quantitative easing which keeps long term interest rates and mortgage rates at low levels.  Will, predictably quotes FOMC members who oppose another round of quantitative easing in this article.  He does not quote FOMC members who are very concerned about unemployment and who advocate another round of quantitative easing.  He argues the Tea Party's favorite enemy, besides Obama, i,e., Wall Street is behind the push for more easing.

Will concludes by arguing that the Fed will create inflation by keeping interest rates low.  Inflation is risk when the demand for goods and services is greater than the capacity available to satisfy the demand.  He argued, however, that lower interest rates are having no effect on demand.  He can't have it both ways.  There is no risk of inflation without a rapid rise in demand that low interest rates does not produce according to Will.  We should worry about inflation rather than deal with the problem of inflation.  Wills problem is ideological.  He wants the world to adhere to his believe system.  He is in the business of selling that ideology to his public.

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