by Ralph Benko
“Houston, we’ve had a problem here.” With those low-key words, command module pilot Jack Swigert of Apollo 13 revealed that, in the later recollection of mission commander James A. Lovell, its “oxygen tank No. 2 blew up, causing No. 1 tank also to fail. We came to the slow conclusion that our normal supply of electricity, light, and water was lost, and we were about 200,000 miles from Earth.” NASA’s heroic and successful effort to return the crew safely home is part of national lore and history.
“Washington, we’ve had a problem here,” we, the voters, are saying, far more emphatically. The most recent government measure shows that America’s economic growth rate slowed, in the last quarter, to a rate of only 1.1 percent, about one-third of normal American economic growth rates.
This may not sound like a big deal. But it is. It means that job creation, including our ability to get better jobs, raises, bonuses and promotions, has vanished.
It means the death of the American Dream. Poor growth compounded over time is the prime cause of the collapse in people looking for work, the ballooning of the federal deficit, and the weakness in our social insurance programs, Social Security and Medicare.
Breaking News! There’s a solution, and the Wall Street Journal editorial board finally, for the first time, has weighed in to advocate that solution (or at least the process from which a solution can be derived):
One place for Congress to start would be to pass Rep. Kevin Brady’s idea for a monetary commission to consider the role and structure of the Fed in its second century. Commissions can be political evasions, but in this case such a body with the right members could ignite a debate about the Fed that the monetary priesthood and most of Washington don’t want to have.
This is a big deal. The monetary commission actually has been passed by the House and now is pending in the Senate.
The Commission has been a signature issue for the American Principles Project, which materially advocated for its inclusion in the 2012 and 2016 GOP national platforms, initiated its endorsement by over 50 major civic leaders, sought House sponsors, and conducted educational briefings on it in over 100 Congressional (and 20 Senate) offices.
APP publicized it in a series of dozens of articles in the mainstream financial and political media, promoted a unanimous resolution in its favor by the national committeepeople of the Republican National Committee, helped to raise its profile among the most influential conservative policy institutes, and applauded its passage, last November, in committee and the full House.
APP continues to advocate its passage in the Senate. This is a high-power, and historic, piece of legislation. This commission is the optimal way to raise the issue of monetary integrity and determine the best method to achieve it.
The empirical evidence is overwhelming that the Fed is most at fault for the death of the American Dream of economic growth with economic justice for all. As I wrote at Forbes.com a year ago in “If The Fed Is Always Wrong How Can Its Policies Ever Be Right?“:
If NASA suffered from comparable inaccuracy the manned spaceflight program would have been shut down by an endless series of Challenger-type catastrophes many years ago. With forecasts this bad is it any wonder the American economy continually crashes and burns?
As I also wrote therein:
One of the most curiously persistent surrealisms of Washington, DC is the reflexive deference given the Federal Reserve System. The Washington elite tends to accord more infallibility to the Fed than do Catholics the Pope.
Now comes one of the world’s top monetary reporters, Ylan Q. Mui, to make a delicate observation at the Washington Post’s Wonkblog, in Why nobody believes the Federal Reserve’s forecasts. Mui:
“The market recognizes that the Fed has repeatedly erred on the optimistic side,” said Eric Lascelles, chief economist at RBC Global Asset Management. “Fool me 50 times, but not 51 times.”
Even the government’s official budget forecasters are dubious of the Fed’s own forecast.
That column goes on to quote a career Fed economist as to the unreliability of its forecasting method, known as “Dynamic Stochastic Equilibrium Modeling.” So even the Fed has, sotto voce, confessed inadequacy.
The Fed, in its own low key bureaucratic language, still is sticking to its guns notwithstanding that its forecasts have become the laughingstock both of Wall Street and Washington.
Laughingstock? Strong word but not overstated. According to a recent piece by Randall Forsyth in Barron’s, “Fed’s Jackson Hole Circus“:
“Clowns to the left of me, jokers to the right.” Those may not have been the lyrics running through the head of Federal Reserve Chair Janet Yellen last week at the annual policy symposium in Jackson Hole, Wyo., but it might be understandable to have had thoughts along those lines.
It’s really no laughing matter, though. You, me, Main Street and the voters and the butt of the slow-growth “joke.”
The Washington Post’s Fed reporter Ylan Q. Mui writing from the Fed’s 2016 Woodstock in Jackson Hole, Wyo.:
In December 2008, the central bank slashed its benchmark rate to zero for the first time in history. When that wasn’t enough, it promised to keep it there until the recovery strengthened, and officials have raised rates only once since then. The Fed also pumped trillions of dollars into the economy by purchasing long-term government bonds and mortgage-backed securities to reduce long-term interest rates, which remain near record-low levels.
In a speech here on Friday, Fed Chair Janet L. Yellen said the central bank will probably redeploy those measures when recession strikes again, an acknowledgement that the unconventional policies of the crisis have now become the norm. A new Fed analysis determined that the central bank’s current toolkit would be enough unless the economic contraction was “unusually severe and persistent.”
“I believe that monetary policy will, under most conditions, be able to respond effectively,” she said.
Einstein never said that the definition of insanity is to continue to do the same thing and expecting different outcomes. But this platitude is attributed to the man whose name is synonymous with genius for good reason. It will not do.
Last year, the American Principles Project staged a high-profile, high-impact Jackson Hole counter-conference on monetary policy at the same time as the Fed’s annual Jackson Hole conference (from which Chair Yellen curiously absented herself, perhaps the only time the Chair was absent in its history). As noted by Prof. Brian Domitrovic in his Forbes.com column:
Actually what happened last year is that the Fed had competition at Jackson Hole. There was a rival, an alternative conference in the majestic Elk grove. The group of conservatives, lead by the intrepid Steve Lonegan, who had several months before briefed Chair Yellen on her invitation in an effort to hear out gold-standard monetary policy views, met in Jackson Hole to hold a “shadow” conference.
It was a glorious shadow conference, with public and public-official intellectuals on the order of George Gilder and Kwasi Kwarteng pointing the way forward, foreseeing how we shall inevitably come to our senses and have reasonable and bona fide money in our economy once again.
Why has the post-2008 economic recovery been so sluggish? Why do we consider the Fed the prime suspect in the sluggish economic growth that has plagued America for the last eight and, in fairness, the last 16 years?
The Fed is imposing on America and the world a Salvador Dali “melting clocks” economy. Among the most remembered works of Dali, the premier surrealist painter, is his 1931 painting titled La persistència de la memòria. It features melting clocks.
Clocks measure time. Time is a fundamental unit of account, very much including for the economy. Were clocks, in the real world, to “melt” — that is, if the length of the second and the minute and the hour were to become unstable — the economy would descend into chaos. Planes and trains would crash routinely (just as the economy does).
Were time, as a unit of account, manipulated to fluctuate even a little, it would inject enormous sluggishness into the economy. But units of time, like our units of weights and measures, are defined impeccably by the US Department of Commerce’s National Institute of Standards and Technology.
Congress has delegated its Constitutional authority to “fix the standards of weights and measures” to a high-integrity executive branch agency, NIST, which is doing an admirable job of keeping the standards of weights and measures fixed. Under NIST, clocks don’t melt. Ounces and inches don’t fluctuate. And everyone understands that letting clocks melt could only degrade, and not possibly enhance, prosperity or economic justice.
In the very same article in the Constitution, Congress also is assigned the power “to coin money and regulate the value thereof.” The Congress, logically enough, delegated this power to the Federal Reserve System. But under the Fed, the dollar “melts.”
How has the Fed performed? As I wrote in the New Hampshire Insider on February 3rd:
A feckless Fed torpedoed the economy under both Presidents Bush and Obama. As The Washington Post’s Ylan Q. Mui noted in Why nobody believes the Federal Reserve’s forecasts the Fed has gotten 50 out of 50 of its last economic forecasts badly wrong. If the National Weather Service had a track record that bad heads already would have rolled. The Fed enjoys a strange impunity.
Reagan and Clinton’s robust job growth occurred under the Volcker-Greenspan “Great Moderation.” That policy was abandoned around the year 2000 thrusting America into a miserable “boom-and-bust” cycle.
The sign on President Truman’s desk, “The Buck Stops Here,” in a very literal sense applies. Still, the buck — Federal Reserve Notes — starts at the Fed. The candidates’ tax plans also are relevant to economic growth. But monetary policy is paramount.
As The Wall Street Journal put it in the editorial referenced above:
The Fed these days has more power than Congress. So thoroughly has the central bank taken over regulating finance since Dodd-Frank, so completely does it preoccupy financial markets, and so broadly has it intruded into fiscal policy and the allocation of capital that Fed officials Janet Yellen, Stanley Fischer and Bill Dudley are the most important economic decision makers in government.
We don’t mean to be spoilsports, but there is the minor detail that no one elects Fed Governors. The Constitution gives Congress control over money and “the Value thereof.”
As with assigning the minute, the inch, and the ounce to NIST to be defined, in designating the Fed to regulate the value of the dollar it was not Congress’s intention to delegate political power, or discretion, over our units of account but to maintain them. The Fed’s statutory mandate is:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.
Sometimes this is called its “dual” mandate. But it cites three, not two, objectives. And the Fed is out of compliance with all three. Under the circumstances of the slow growth and economic inequities in the economy, Chair Yellen’s statement that “I believe that monetary policy will, under most conditions, be able to respond effectively” is, frankly, alarming.
It is time for Congress to assert its authority. The clear way to do so is to finish enacting Chairman Brady’s Centennial Monetary Commission to methodically and objectively review, in a bipartisan manner, the empirical outcomes of Fed policy in the real economy.
It would be good for both presidential candidates to call for the enactment of the commission. This commission supports both of their premier agendas: that of Donald Trump, emphasizing economic growth, and that of Hillary Clinton, emphasizing economic justice.
There is extensive evidence that the Fed’s ongoing “Melting Clocks” monetary policy is bad for economic growth and for economic justice. America yearns to have the American Dream back.
Demand of Congress and of the presidential candidates:
Enact the Centennial Monetary Commission.
No more Melting Clock monetary policy.
Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles Project’s Senior Advisor, Economics.