Kudlow’s Money Politics

Phillips Heads Screw Drivers

My great pal Jerry Bowyer (who incidentally will be appearing on tonight’s Kudlow & Company) fired off this email earlier. It’s definitely worth a read…

Phillips Heads Screw Drivers

Most analysts scoured this week’s Fed Minutes looking for clues as to what they’re going to do.

I scoured them looking for some explanation for why they haven’t done what the stock, bond and commodities markets know they should have done already. Bad policy comes from bad ideas. What bad idea has been knocking around in the collective known as the FOMC. You don’t need to read all four pages, all you need to see is one paragraph.

Here’s the (why we don’t have enough) money shot:

Participants generally expected that core inflation would edge lower over the next two years, reflecting a slight easing of pressures on resources, well-anchored inflation expectations, and the waning of temporary factors that had boosted prices last year and early this year. Participants anticipated that total inflation would slow as well, particularly if market expectations of a modest decline in energy prices in coming quarters were to prove correct. But they were concerned that the high level of resource utilization and slower productivity growth could augment inflation pressures. Against this backdrop, the Committee agreed that the risk that inflation would fail to moderate as expected remained its predominant policy concern.

In the Bowyer English Version:

Even though inflation has been going down and probably will continue to fall, we’re going to starve the banks of cash because some long-dead central planner named AW Phillips said that growth is bad for prices. When entrepreneurs and investors create too much wealth, our job is to yank back on the chain as hard as possible. The drivers of growth must be punished, otherwise everybody’s going to get a little too excited, and then prices will rise. Better to risk a deflationary recession than to let the drivers drive too fast.

Phillips was, by all accounts, a fine engineer and a war hero to boot. But he was an awful economist and has done enormous harm. It’s time for Bernanke to stop listening to the Phillips heads who dominate the Fed staff cubicles and start listening to the markets.

Larry Kudlow — Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

Most Popular

Culture

Jussie Smollett Changes His Story Again

The actor Jussie Smollett continues to talk about the alleged January 29 attack on him during a frigid night in Chicago, giving Good Morning America his fullest description yet of his claims. It differs substantially from what he told police initially after the alleged assault. Smollett told GMA that the ... Read More
Politics & Policy

We’ll Regret This

Mitch McConnell says the president will sign the budget deal and he will also declare a national emergency to build the wall, as I expected. We’ll see the legal justifications he uses, but as a political and constitutional matter this is a long-term disaster. Oh, it might be good for Trump according to the ... Read More
White House

The Failure of the Deal

EDITOR’S NOTE: The following is Jonah Goldberg’s weekly “news”letter, the G-File. Subscribe here to get the G-File delivered to your inbox on Fridays. Dear Reader (But especially Sammie), I had my say on the emergency declaration yesterday, and I’m sure I’ll have to say it all again not very far ... Read More
Politics & Policy

Capitalism’s Cold War

The story of capitalism since the 1980s has been that of a kind of cold war between capital and politics. In the decade prior, American government was at the nadir of its prestige and credibility. The so-called War on Poverty, launched with great fanfare and idealism in the late 1960s, quickly collided with ... Read More
U.S.

Trump Declares National Emergency to Fund Border Wall

President Trump declared a national emergency on Friday in order to unilaterally appropriate $3.6 billion for the construction of his long-promised border wall. The announcement, made during a televised White House Rose Garden ceremony, came after Congress passed a bipartisan homeland-security-funding bill ... Read More