Until economists drop the pretensions of knowledge (the term is Hayek’s) implicit in their overt, myopic scientism called economics, the discipline will forever remain a barren field for arcane specialists uninterested in how the economy works. People like Milton Friedman, Hayek, von Mises and many others lived in both worlds, in fact they were forced to do so, even though, unlike todays uber-diversified hybrid job market, University life beckoned them. They still made time to think through both policy and the theoretical foundations of their craft. That demand, or irritant, is gone today.
This is evidenced in the Federal Reserve Chair testimony, which remains the absolute worst dog ‘n pony show on the Hill. Remember Solzhenitsyn’s Soviet dictum: ‘we pretend to work, they pretend to pay us.” Until Congress reforms the central bank to one mandate of price stability, this dog ‘n pony show continues.
Testimony given by the Chair characterizes the U.S. economy at full employment. Does anybody really believe this? Even with discrepancies between the U3 & U6 data, any look at ones neighborhood tells a different story. What will it take to acknowledge the defeat of the Phillips Curve by Volcker. Why the continued, even moribund use of Keynesian terms when our economy is harnessed to a reality that cannot be captured by previous paradigms. And why do people like Yellen and her cohorts (they are legion) frighten at having to accept difficult truths about this once proud institution. Is it as simple as hubris and the wanton need to work in Washington?
Here’s the truth: the central bank cannot ever know that natural rate of unemployment. The art is to speak in terms that affirm a defunct Phillips curve. Did you get that. Because it cannot know the actual status of frictional unemployment it must guess about velocities and magnitudes relative to price stability. With this guess, the Chair must acknowledge unpleasant realities, like the changing nature of employment, barriers to job switching like government rent-seeking of occupational licensing; wait, their’s unions, confiscatory taxtion, the impacts of applied technology, regulation, demography and yes . . . . wait for it. . . weather.
The whole darn show firmly identifies with an unspoken Congressional ethos of pass the buck. This is why the centuries old fight between academia and industry has industry winning. The dynamics of the central bank are best propagated not by academics but industrialists. Rex tiller may yet prove to be the best Secretary of State since the Founding.
Where does this leave Yellen and a nearly defunct central bank exhausted in service to progressive ideals. My guess is she knows the ground beneath her has shifted and like a true bureaucrat, is buying time. All of this is embodied in her tame, professional reluctance to admit that tax cuts matter.
2017 celebrates the arrival of Bolshevik power in Red October. The Russian Revolution is too complex to summarize here, but having moribund individuals at the helm harnessed to archaic failed ideas matters.
Just ask Lenin, Trotsky or any of the sons of perdition.