Stanley Fischer, Vice Chairman of the Federal Reserve (MANDEL NGAN/AFP/Getty Images)
The Federal Reserve’s annual Jackson Hole retreat last week was a strange exercise. The theme was “inflation dynamics.” Yet the Fed’s measures of inflation have shown no dynamics, only statics, for years.
Fed Vice Chair Stanley Fischer said the following at Jackson Hole: “Although the economy has continued to recover and the labor market is approaching our maximum employment objective, inflation has been persistently below 2 percent.” Thus the economy is good, the employment situation is very good, and that of inflation superlative.
But conditions today do not bar these observations: 7 years of recovery as anemic as any since the 1930s; un- and under-employed persons numbering over 10 million; a financial sector combining with government to displace the real economy of production and jobs; an imminent stock-market crash.
Jackson Hole was particularly weird for the Fed this year: it gave the impression that the institution is oblivious.
It was also different at Jackson Hole this year because the Fed had company. There was a shadow conference hosted by the American Principles Project and run by Steve Lonegan, the man who in February had scored the conservative critics’ meeting with Fed Chair Janet Yellen.
At the shadow event (where I was a discussant), there was no talk of inflation dynamics, no concentration on tangents. George Gilder spoke of how information theory verifies that gold, and possibly bitcoin, functions as money better than all other comers. Judy Shelton and Benn Steil debated the wisdom of Shelton’s proposal for gold-backed bonds issued by the Treasury. Mark Calabria revealed the complicity of the New York Fed in helping the big institutions load up on sub-prime assets before the implosion of 2008. The panel on digital currencies told us how that innovation can supplant banks, central and otherwise. Rich Lowrie proved that the Fed suppresses wage growth in the name of inflation-fighting. British MP’s Kwasi Kwarteng and Steve Baker and U.S. Rep. Scott Garrett explained how monetary reform is politically feasible.
The APP’s Jackson Hole Summit was, manifestly, a comprehensive intellectual exercise in the service of diagnosing and solving a major practical problem. The matter of the government’s official inflation and unemployment numbers, the Fed’s focus, is not a real practical issue. It is an abstraction that at this juncture serves to obscure the difficulties with which this economy is beset. The Fed feels itself bound to stare at these irrelevancies, “inflation” and “unemployment” as defined by second-rate careerists at the Bureau of Labor Statistics. After it has done so, the Fed declares its principal duty discharged.
This is to fall into the fallacy of officiousness. One of the mental weaknesses which government succumbs to is to suppose that its definition of a problem encompasses the actual problem. It is a classic stratagem of the psychologically and intellectually timid. The variety, the entropy of the world is so great that one strives to impose order upon it. Strong minds understand that good attempts at ordering are at best approximations. Government minds hold that their impositions of order on the world are better than approximations: they are complete. At some point, the laziness extends to not even caring. Whatever the government says is the problem is what matters.