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free trade & free markets too much government

Fed Up

No one is really fit to “run the economy.” The pretense of the ability can be fun to watch, amongst economists as well as pundits. But because they’re doing the impossible, what they say can lurch from wisdom to utter folly in the space of a paragraph.

Neil Irwin, at the Washington Post, admits that the Federal Reserve’s current policy of pumping more and more money into the economy may finally be working, “but that may not be a good thing.”

I suspect he’s right.

But not for the right reason.

Irwin notes that the Fed “in September introduced a policy meant to boost housing and stock prices, and now, nine months later, housing prices and stock prices have risen quite a bit. Enough, indeed, to (so far) offset the impact of higher taxes that went into effect Jan. 1 and federal spending cuts that took effect March 1.” But the problem, he goes on, “is that these channels through which monetary policy affects the economy tend to offer the most direct benefits to those who already have high incomes and high levels of wealth.”

Irwin sees the problem as inequality: the policy helps the rich get richer and does little for the poor. His solution is fiscal policy that throws more money directly at the poor.

Yet there’s not much reason to believe his preferred giveaway would actually “stimulate” the economy. The Fed’s current policy, on the other hand, may stimulate, a bit, but will lead to a new boom-​bust cycle.

The poor need jobs; the rich need to invest. But all this requires a degree of stability and trust and sustainable prices — not government-​knows-​best tinkering with the money supply. Or yet more deficit spending.

This is Common Sense. I’m Paul Jacob.