The Federal Reserves Dual Mandate: Price Stability & Unemployment, A Prospectus

Marc Sumerlin is the current managing director of the Lindsay Group.  He served on President George W. Bush’s National Economic Council. Considered an authority on the Federal Reserve, he recently wrote criticizing the failure of the Federal Reserve to perform its dual mandate of price stability and maximum employment.

Dr. Sumerlin has exposed what every reader of Allan Meltzer knows:  the dismal record of the U.S. Federal Reserve!  Anyone with even a rudimentary education on the history of the Reserve knows how it contributed to, even caused the Great Depression, the Great Reagan Recession and our current economic Recession.  Without rewriting Allan Meltzer’s two volumes “History Of The Federal Reserve”, Dr. Sumerlin’s brief article in the Wall St. Journal is compelling for two reasons:

1.  Exposing the Historical failures of the Federal Reserve provides credence that a broader mandate is wrong.  If the Federal Reserve cannot effectively handle two components of a single mandate, then why expand its responsibilities?

2.  Expose the intellectual bankruptcy grounding contemporary liberalism’s drive to expand Federal Power in creating and blindly following SPECIALIZATION.   IT IS THE RESPONSIBILITY OF CONGRESS TO SECURE STABLE MONEY!  This sacred political responsibility cannot be outsourced to specialists absolving Congress!

Let’s get our history right!  The Federal Reserve created the circumstances that led to the mortgage bubble by keeping interest rates artificially low to blunt the Recession that followed the collapse of both the Tech bubble and 9/11.

The Federal Reserve has historically defined ‘price stability’ in a way that is inherently inflationary.  The Federal Reserve measures inflation by reference to the consumer price index which has led it to ignore types of prices not indexed for inflation (residential real estate and commodity prices).

The 2% target inflation rate indicates that ‘stable prices’ rise 25% each decade.


This bias arrives from the inordinate fear of price deflation.

From January 2000 – 2010 prices went up as follows:

gold = $284 now $1,117

oil = $23 now $75

copper = $1,670 now $6,980


While our dollar is worthless, quantitative easing (printing EASY money) has ENCOURAGED SPECULATION DRIVING UP BOTH COST AND PRICE.

What is the solution?

Its simple.  Narrow the Fed’s mandate to price stability.  Remove the inflationary bias at the intellectual core driving the behavior of principals.  Just think, if the Federal Reserve managed to maintain a stable dollar along with a fiscally responsible Congress our current fiscal and macroeconomic problems would be resolved by markets.

November’s Coming!

About William Holland

Systematic Theologian/International Relations
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