At the Cato Institute Monetary Policy, Part 1

Sorry, but due to traffic, I missed Plosser’s talk.  Just saw the Philly Fed’s camera guys leave, so I suspect you can find it on their website.

As you can note here, he called for a single mandate for the Fed — inflation only.  Very sensible, because monetary policy can’t affect employment much.

Here’s the page for the agenda.

This panel features:
Jerry L. Jordan
Former President, Federal Reserve Bank of Cleveland

George A. Selgin
Professor of Economics, University of Georgia

Athanasios Orphanides
Professor of the Practice of Global Economics and Management, MIT Sloan School of Management

Jerry Jordan derides monetary policy attempting to do fiscal policy as useless, and argues that QE is perverse.  The idea of lender of last resort is vapid — who can receive it?  Under what conditions?

He questions the unemployment-inflation link.  Implicitly argues for a single mandate on inflation.

George Selgin argues the Fed has been far less competent than it publishes.  Makes the point that the bank regulation has existed since the founding of the republic.  Notes that banks pre-Fed had to hold T-notes.

Questions Fed independence over the years.  His argument on McChesney Martin is kind of weak, as Martin thumbed his nose at the Treasury after becoming Fed Chair.

Also argues that deflation can be benign — though when debts are high, I can’t see it being a good thing now.

Points out that the Fed did not follow the approach of Bagehot.  Lent against bad assets, and not at a penalty rate.  The Fed played favorites at the behest of political interests.

Notes how punk the recovery has been, and that the most the Fed can unverifiably claim is that the Fed prevented a repeat of the Great Depression.

Athanasios Orphanides disagrees, arguing the Fed was a good idea, but the Fed should have a single mandate, inflation only.  After all, money is money — and we can control money and credit issuance, but the ability to affect employment is weak at best.

The concept of promoting full employment predated Congress mandating it in 1946.  In 1939, the FRB acknowledged it.  In 1957, they noted that price stability was critical.  Humphrey-Hawkins clarified the deal mandate in 1977, amid a bad economy.  Volcker argued against a dual mandate earlier this year.

Impossible to measure the output gap.  Revisions to old data make past efforts look better than they actually were.

Q&A

Bert Ely — Is the US economy better off because of Fed price fixing?

Jordan: Current interest rates have nothing to do with Fed policy.  (DM: What?!)

Orphanides: Efforts at twist not justifiable.

Q2 — If Jackson opposed central banking, why is he on the $20 bill?  (Laughter)

Q3 — Asks about virtual currencies (figures, someone has to do it), and money laundering.

Q4 — Asks a question about the recovery, and why it is better than EU?

Orphanides argues that a euro is not a euro everywhere in the EU.  Argues dual mandate is not why things are better in the US.

Jordan argues the EU is engaged in malinvestment.

Q5 — Wayne Angell — why are long bond yields so low?

Says he is grateful to be short now.