At the Federal Reserve confab at Jackson Hole, Wyoming, yesterday, Fed chair Janet Yellen gave a speech. Of course she did. The chair’s speech happens every year at the Fed’s favorite gathering.
Except last year. In August 2015, Fed minions gathered once again in the shadow of the Grand Tetons there in western Rockefeller country, as has been done since the early 1980s, but sans their leader. She had to check on a detail or two at HQ in Washington—or something like that.
Actually what happened last year is that the Fed had competition at Jackson Hole. There was a rival, an alternative conference in the majestic Elk grove. The group of conservatives, lead by the intrepid Steve Lonegan, who had several months before briefed Chair Yellen on her invitation in an effort to hear out gold-standard monetary policy views, met in Jackson Hole to hold a “shadow” conference.
It was a glorious shadow conference, with public and public-official intellectuals on the order of George Gilder and Kwasi Kwarteng pointing the way forward, foreseeing how we shall inevitably come to our senses and have reasonable and bona fide money in our economy once again.
Which brings us to this year. The gist of the keynote speech yesterday was that the Fed has “learned.” Before 2008, it really didn’t have the “tools” to provide counter-cyclical responses to macroeconomic developments (why it would want to do that: another question). Once the Fed pumped up banking reserves to unheard of levels in the trillions, in response to the events of ’08, the Fed’s favorite method of nudging the economy, namely open-market operations in which the Fed buys or sells government debt to affect market interest rates, lost effectiveness. Banks had so much cash that the Fed’s moves in the government-bond pits didn’t matter.
This, Chair Yellen explained, is where the ingeniousness of interest-on-reserves came in. By paying interest on the trillions in bank reserves, the bond market became significant again. Interest sterilized the massive banking reserves, immobilizing them for economic purposes beyond the big banks’ own balance sheets, and petty Fed purchases and sales of governments once again moved interest rates. It was a beautiful thing. The Fed saved (i.e., made irrelevant) the banks by making them moneyed wards of the state and then re-took over interest-rate setting. Win, win, and win.
Maddening, surely, is this version of events of 2008-present, but not quite offensive. The offensive part comes when government people, sadly including Chair Yellen herself, say things like this at Jackson Hole yesterday: “With the U.S. economy now nearing the Federal Reserve’s statutory goals of maximum employment and price stability, this conference provides a timely opportunity to consider how the lessons we learned….”
Full employment? Jason Furman (President Obama’s top economist) himself hit the pundit circuit last week to say that to a dismaying degree, the nation’s men are sitting on the couch (watching TV he specifically noted), instead of working. There is no “full employment” in the real sense, as Furman conceded: That’s why “labor force participation” is at historic lows.