The Ideological Drive Animating Policy Convictions Of F.O.M.C.

The Federal Open Market Committee (FOMC) is responsible for setting macroeconomic policy trends in consultation with its chairman.  Why is this significant?  Keynesian thought has overt socialist underpinnings that work at odds with market based trends.  The classic case is the resurrection of the ‘Phillips Curve’.  This doctrine was only valid when America was a manufacturing hegemon requiring centralized politics, it was an idea that was effectively killed by Volcker and Reagan.  It held that central bank policy was a consistent trade-off between inflation or employment.  With the arrival of digital based decentralized political economy, it really has no place in the policy calculations of any contemporary fed.

It is still taught at major Universities, think tanks and respected heroes of socialist, centralized policy convictions like Dr. Krugman.  It was lambasted recently by Volcker while being interviewed at Princeton.  The single most significant ideological point is that both Reagan and Volcker defeated this ideological myth before the arrival of digital, decentralized relations.

Simply put:  there never was a valid basis for the presupposition that was ‘the Phillips Curve’.    And yet, with team Obama, its back.

Why is this a problem?  The Federal Reserve has thrown trillions of dollars at the economy in an effort to boost job growth.  Its been a strategic failure.  Why does it continue to do it?  Because it want’s to remain relevant.  The Fed is a creature of Congress and it will do whatever it can to assist Congressional majorities from having to make difficult policy choices.

What has Q.E. gotten us?  An asset bubble, easy money toward monolithic financial institutions that borrow on the cheap and sky-high price/earnings ratio’s.  Yet our unemployment rate is still hovering around 17%.

The Fed got the mandate to seek high employment in 1978 under the Humphrey-Hawkins law.  This shifted the political/policy responsibility of employment off the political base of Congress toward the Fed to seek policy arrangements that would sustain stable prices consistent with targeted employment.

To achieve this, the Fed tinkers with interest rates to effect the monetary base whose impact is seen in the public’s discretionary spending.  The problem is that since 2008, THIS has not worked.

Debasing the dollar in the hope of creating jobs has failed.  If we had a more intellectually responsible Congress & Fed, we would see that to fix the U.S. economy would require fiscal reform.

When the Humphrey-Hawkins Act was passed in 1978, unemployment was 5.8%.  From 1947-1971 America averaged unemployment was 4.7%.  Currently, team Obama has never gotten below 6.4%.

What’s the significance of the above citation of 1971?

That’s when America decided to end the Bretton-Woods monetary system which enabled every foreign government on the planet to redeem their dollars for gold at a fixed rate.  When Nixon closed the ‘gold-window’ we entered the age of fiat money & the ‘great inflation’.

From 1971 to ‘Morning Again in America’ (1980) under Reagan, the U.S suffered incalcuable social, political harm, something those living under the Weimar Republic or the German ‘Gotterdammerung’ experienced.

IT ended in 1982, when Reagan & Volcker succeeded in killing the rate of excessive money growth (inflation).

Then came the 25 year boom that ended in 2008.

We can do it again.  We need leaders with balls.

(Read the world’s best account of how Reagan/Volcker succeeded in the late great WSJ senior editorialist Robert Bartley account The Seven Fat Years at Amazon for 1 CENT.)


About William Holland

Systematic Theologian/International Relations
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