World Video | Defence | Foreign Affairs | Natural Events | Trade | NZ in World News | NZ National News Video | NZ Regional News | Search

 


Encouraging Economic Leadership

Encouraging Economic Leadership
By William E. Spriggs

Last week, Janet Yellen made her second major speech as chair of the Federal Reserve Bank. Again, her talk as chair is fresh air compared with what is typically heard from Fed chairs. During her first speech in April in Chicago, she actually called out the names of specific unemployed workers-putting a human face on the real effects of Fed policy.

The Federal Reserve is an odd body. Its Board of Governors is nominated by the president and confirmed by the Senate. There are seven members of the board, and every two years, a new 14-year term will begin for a slot on the board. So, in theory, a president would appoint only four members, although board members rarely finish their terms and presidents normally appoint more. The chair and vice chair of the board are chosen by the president and confirmed by the Senate, from among the board members. Their terms of four years do allow more direction from the president.

The Board of Governors, the president of the New York Federal Reserve Regional Bank and four of the remaining 11 presidents of the regional federal reserve banks (who rotate their one-year membership) form the policy-making body that sets U.S. monetary policy-the Open Market Committee (FOMC). That committee sets interest rates for the United States, determining how easy it will be for banks to extend credit and businesses and consumers to borrow to invest in the economy or buy homes or cars-expanding the economy and creating jobs.

The five members of the FOMC who are regional bank presidents are chosen by their regional bank's board of directors, the majority of whom are elected by the commercial banks in that region, with approval from the Fed Board of Governors.

So, for such a powerful policy-making body, this clearly is a design giving more weight to America's financial elite. Though the operating tenet of U.S. monetary policy set by the Humphrey-Hawkins Full Employment Act is to promote full employment consistent with price stability, because banks loan money, they are clearly more nervous about inflation than unemployment. Inflation lowers the value of dollars, helping those who borrow and get to repay loans with dollars of smaller value. And workers, of course, are far more concerned with unemployment than are bankers.

For too long, the Fed has kept Wall Street happy by assuring everyone that inflation would remain under control, not unemployment. But that means keeping a tight rein on the economy, resulting in long periods of high unemployment. Weak labor markets break down the efficiency of labor markets. First, the bargaining power of employers is obviously higher when unemployment is high and there are lines of potential hires to choose from. Depressed wages weaken the signals that rising wages send of skill shortages that would encourage people to get training for occupations in demand. Second, many job openings are filled by word-of-mouth networks among friends, co-workers and neighbors. High levels of unemployment, like fallen telephone wires, break down the flow of information on jobs in the networks, making it more difficult for firms and workers to find matches of skills and wages-especially those who are high school educated.

In Yellen's New York talk, she emphasized the Fed would remain committed to moving toward full employment, warning that may be at least two years away. And, most importantly, she said that rather than a single target-like the unemployment rate-the FOMC would consider a range of information on the labor market.

Predictably, inflation hawks in the financial world don't like that message. They instead warn that if the economy overheats, it will cause the Fed to take "costly" actions to undo that. But, that is an odd reaction. The Congressional Budget Office estimates our unemployed resources will cost the economy more than $1 trillion compared with producing at our nation's potential this year. And that is five years into this "recovery." Given the unprecedented efforts of the Fed to move the economy forward, the lesson of this downturn is that the Fed should seriously doubt its ability to get America back to full employment if it takes actions that slow the economy. What could be more costly?

ENDS

© Scoop Media

 
 
 
 
 
World Headlines

 


Signs Of Ebola Decline In Liberia Offer ‘Glimmer Of Hope’

Equipped with UNICEF-developed and Government-approved awareness materials, these girls go door-to-door in West Point, Monrovia, to educate their parents, family members and friends about Ebola and how it can be prevented. Photo: UNICEF/UNI171713/Griggers More>>

ALSO:

Allegations Of Misreporting By Joint Darfur Mission

Ban ‘Deeply Troubled’ by Findings of Review of Allegations of Misreporting by Joint Darfur Mission More>>

Status Quo Not Viable Option’ In Jerusalem

Under-Secretary-General for Political Affairs Jeffrey Feltman briefs the Security Council at its meeting on the situation in the Middle East, including the Palestinian question. UN Photo/Eskinder Debebe More>>

ALSO:

  • ITUC - Israel’s Settlement Expansion is an Outrage
  • World News: No To TPP Trade-Offs

    No to TPP Trade-Offs, Say Public Health, Fair Trade Activists at Sydney TPP Ministers’ Meeting More>>

    ALSO:

  • AFTINET - Fair Trade Group Calls for Release of TPP Text
  • Al Jazeera Interpol Rejects Egypt Request For Red Notice On Journalist

    Interpol, the international organisation for police cooperation, has rejected a request from Egypt to issue one of its red notices against Ahmed Mansour, an Al Jazeera journalist. More>>

    UN-Backed Study: Fruit Flies To Prompt Better Pest Controls

    Bactrocera dorsalis is causing “incalculable damage to horticultural industries and food security” across a swathe of countries in Asia, Africa, the Pacific and parts of South America. Photo: IAEA/Viwat Wornoayporn More>>


    ‘The Only Way To Stop Ebola Is At Its Source’ – UN Chief

    Girls in the city of Voinjama look at a poster that displays information and illustrations about how to prevent the spread of Ebola. Photo: UNICEF/2014/Liberia/Jallanzo More>>

    ALSO:

  • Christian World Service - CWS appeals for help to Stop Ebola
  • UN: Multi-Billion Dollar Horn Of Africa Pledge

    UN’s Ban, Global Leaders Join Forces in Multi-Billion Dollar Horn of Africa Pledge More>>


     
     
     
     
     
    World
    Search Scoop  
     
     
    Powered by Vodafone
    NZ independent news