23 May 2012

Fed's Kocherlakota: I Reject Your Reality and Substitute My Own

"'When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `to be master -- that's all.'"

Lewis Carroll

I thought it was interesting that Narayan Kocherlakota, president of the Minneapolis Federal Reserve Bank, decided to print a recovery assertion now. This seems almost like a followup to the Recession Myth Claim put forward a few years ago by Deregulator in Chief Phil Gramm: Phil Gramm Says There Is No Recession, The US Is 'a Nation of Whiners' - July 11, 2008

Translation: Our crackpot models and malignantly self-serving regulatory policies that caused the financial crisis in the first place now say that we have done a great job in creating a recovery and that this is the 'new normal,' so in the immortal words of Phil Gramm, suck it up you crybabies.

Considering that the Fed claimed it could not find a housing bubble, or any associated credit risk in the banking sector, with both hands while it was blowing systemic risk, economic distortion, and malinvestment in heroic volumes out of its own ass, you will forgive me if I am a bit skeptical of any 'full employment' assertions here. Yes, I fully understand the economic theory that he is citing. It is soon to be if not already discredited in the conditions and economy that exist today.

Fed's Kocherlakota: US Close to Full Employment
By Greg Robb

WASHINGTON (MarketWatch) - The United States is much closer than generally thought to full employment and it is time for the Fed to shift away from its ultra-easy monetary policy stance, said Narayana Kocherlakota, the president of the Minneapolis Federal Reserve Bank, on Wednesday.

In a speech in Rapid City, S.D., Kocherlakota noted that, in the wake of a financial crisis in the early 1990s, Sweden saw a sharp, and lasting, spike in the maximum rate of unemployment, or the level of joblessness sustainable over the long-term without causing inflation to rise.

Kocherlakota said the U.S. inflation rate is signaling a similar spike in the maximum employment level in the U.S. and the Fed should "be responsive to such signals."

What 'inflation signal' would that be, Mr. Katcherlakota? The ones that you and the government publish, or some private data that we have not yet seen?

Group Discussion Questions:
What public policy actions might prompt a greater sense of accountability at the Fed? cf. Ron Paul
Do the laws of moral hazard apply to tenured professors and those who hold government sponsored sinecures?
What models could possibly be prompting Mr. Kocherlakota thinking?  Hint:  Princeton AND the University of Chicago
Is this what Jamie Galbraith had in mind when he dscribed economics as 'a disgraced profession?'
What would Andrew Jackson do? (WWAJD)