A strange thing happened at the Federal Reserve Bank’s summer-end conference in Jackson Hole, Wyo. Usually these are boring affairs, but liberal protesters crashed the party this time, and demanded that the Fed help the poor by holding interest rates close to zero and injecting more dollars into the economy.
An exchange between Reggie Rounds of Ferguson, Mo., and Fed vice chairman Stanley Fischer tells the whole story:
Mr. Rounds: “We’re desperately needing a stimulant into this economy.”
Mr. Fischer: “That’s what the Fed has been trying to do and will continue to try to do.”
So far, this monetary strategy obviously hasn’t worked so well: The economy has been stuck in a 2 percent rut, real wages and median household income are slightly down over the last seven or so years, and the United States has barely more jobs today than it had in 2007. This despite $3.3 trillion of ongoing and unprecedented asset purchases by the Fed since 2008.
Which prompts the question: Why do so many Americans — from liberal activists to Wall Street traders addicted to easy money — still believe that the Federal Reserve Board chairwoman, Janet Yellen, can flip an ignition switch to propel the American economy into overdrive? We would all love to see a resumption of the boom years of the 1980s and ’90s, but it is wishful and even dangerous thinking to believe the Fed can get us to full employment with, 12 million more jobs, via the printing press and near-zero interest rates.
What about the risk of inflation? Admittedly, the headline consumer-price-index number is still in the sweet spot of about 2 percent, but the CPI is only one measure of inflation. It is also true that the middle class is feeling financially squeezed — in part, because wages aren’t rising, but also because, over the past several years, the prices of the basic family necessities (food, medicine, and energy) have risen at about double and, at times, triple the official 2 percent inflation rate. The price index of meats, poultry, fish, and eggs continues to rise — up 6.3 percent in 2014. Health-insurance costs keep rising at more than 5 percent. And the price of gas at the pump is nearly 90 percent higher than it was when Barack Obama became president.
It’s curious that left-wing advocates for the poor don’t seem to worry at all about the specter of rising prices. After all, who gets hurt most by inflation? Look at what happens to other nations, such as Mexico, Bolivia, and Argentina, when they debase their currency. Or look at the U.S. in the 1970s: The spike in prices devastated poor households, whose real incomes fell the most in that decade. Senior citizens living on fixed incomes and middle-class workers whose paychecks fell persistently behind the pace of rising prices were also hurt.
We are, of course, a long way away from Carter-era 13 percent inflation. But that bleak period should be a constant reminder of how much the poor and middle class suffered from the common view back then that to put Americans back to work we needed to tolerate ever-rising prices at the grocery store and the gas pump. We got the higher prices, not the jobs. The result was stagflation — rising inflation and unemployment.
Perhaps the Left is emotionally attached to the idea of expansionary monetary policy because they have no other arrows left in their Keynesian quiver. We’ve had stimulus spending, industry bailouts, and $7 trillion in new debt that was supposed to provide the jobs Mr. Rounds and all of us want to see. Since those arrows have all missed their mark, easy money is about all that’s left — although some liberals still argue for trillions in more borrowing and spending. Talk about a Hail Mary pass.
One of the goals of the Fed charter is to aim for “full employment,” but this is like asking a politician to part the oceans — or, for that matter, to keep the oceans from rising or falling. Sorry, the Fed can’t restore full employment, because low growth and underemployment are being caused by tax, budget, and regulatory mistakes. No amount of money circulating in the economy can change the negative effect on business of these assaults.
As these pages have often noted, Japan has tried fiscal stimulus expansions for more than 20 years, and every possible monetary policy, to end its semi-depression. None of it has worked.
Robust growth in the U.S. will resume with changes in the tax code that lower tax rates — especially the highest-in-the-world corporate tax. Growth will resume when we repeal much or all of the employment suppressants in Obamacare and Dodd-Frank. Growth will resume when the EPA’s radical anti-carbon standards are withdrawn and we allow our coal, oil, and gas industries to produce more energy here at home. Growth will resume when our corrosive welfare-state policies start rewarding work. Growth will resume when we stop borrowing half a trillion dollars a year.
Mr. Rounds was right that “we’re desperately needing a stimulant into this economy.”
Janet Yellen can’t do that. She can’t put Humpty Dumpty back together again. Only Congress and the president can do, that through pro-growth regulatory and fiscal policies — and so far they’ve refused.
— Stephen Moore is the chief economist, and Norbert Michel is a research fellow in financial regulations, at the Heritage Foundation.