The Two-Headed Central Bankista Coin

By Stephanie Kelton

Like all good Central Bankistas, Charles Evans (Chicago Fed) and Dennis Lockhart (Atlanta Fed) insist that if the Fed isn’t achieving its stated (employment and inflation) objectives, then it just isn’t doing monetary policy the right way.  The flip side of the Central Bankista position is that whenever the macro data are more-or-less consistent with Fed targets, it must necessarily mean that central bankers have gotten it right.  Nothing else, least of all fiscal stimulus/austerity, could possibly deserve credit (or blame) for whatever is happening at the macro level.  It’s heads monetary policy succeeded, tails monetary policy failed.  It also explains why Paul Volker’s policies are still widely credited for bringing an end to double-digit inflation, while President Carter’s deregulation of the natural gas industry (which finally brought energy prices down) doesn’t even merit a footnote in the textbooks.

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5 responses to “The Two-Headed Central Bankista Coin

  1. I dont see why the fed has UE in its mandate. UE is a real economic measure that is more effectively targeted by the economic government. It should just have monetary measures in its mandate.

    • lxdr1f7
      There’s a wider question – why is there an apparent institutional separation between central banking and the rest of government? You can also ask if the history of fiscal and monetary policy supports the idea that the central bank has actually been one of independence to the fullest extent suggested by monetary policy theorists. For me, I wouldn’t have questions of the interest rate on reserve borrowing separate from broader government policy objectives. I feel that this interest rate could be zero. That would leave the central bank with regulatory and functional roles to play. Full employment is then a broad government concern with the goal of maintaining full employment coordinated by a central government authority.

      • A sufficient degree of separation of powers is necessary IMO. Otherwise you place too much responsibility and power under a group of individuals. Too much responsibility means less effective decision making and too much power means their is a capacity for misuse.

        I would separate the CB further from other arms of gov by making the governing commmitee public elected and I wouldnt lend reserves into circulation but transfer them evenly to all citizens when an expansion of money is required as indicated by the rate of inflation.

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  3. Does the fact that Reagan brought on near depression get any credit for lowering the price of oil?

    I am not defending the tremendous unemployment that ensued, but shouldn’t we give credit to the real cause and effect?