The Folly of Fed Obeisance

As if to get my work week off to rotten start, my otherwise good pal Don Boudreaux greeted me first thing Monday morning with a link to Robert Samuelson’s Sunday evening Washington Post op-ed on “The Folly of Fed Bashing.” In it, Samuelson takes the Fed’s conservative critics to task for their “misinformed” attacks on the Fed, faulting them for failing to appreciate how much more transparent the Fed’s operations are today than they were some decades ago, and for not understanding that its actions, however undesirable they may seem, are generally “necessary for the nation’s long-term economic health.” As for the perception that “the Fed is a large and aloof agency that needs to be tamed,” it rests, Samuelson says, on a “simplistic” view of the Fed’s history.

Well I can’t speak for others, but I know something about the Fed’s history. And I’ve come to the conclusion, informed by careful consideration, over the course of several decades, of that history, and the history of numerous other monetary arrangements in the U.S. and elsewhere, that the Fed is actually…a large and aloof agency that needs to be tamed.

True, the Fed is in some respects more transparent than it used to be. But it has also been doing things that it never used to do. The ordinary Fed publications and disclosures to which Mr. Samuelson refers shed no light at all on many of these novelties. Not for nothing did Dodd-Frank provide for a special, one-time audit of the Fed’s crisis-related undertakings. Among other things, that audit pointed to some serious conflicts of interest that might otherwise have escaped censure. Yet according to Mr. Samuelson’s supposedly up-to-date Fed history, it should have been just as unnecessary as the recurring audits Fed “bashers” have been calling for.

Would such recurring audits themselves be otiose? The Dodd-Frank audit covers the Fed’s actions up to July 21, 2010. Consequently the GAO isn’t allowed to look into any of the Fed’s unorthodox measures since then, including later rounds of Quantitative Easing, Operation Twist, and its enhanced overnight reverse repo program, not to mention its stress tests and other financial-regulatory measures. More importantly, under existing law it can’t be asked to look into any “emergency” steps the Fed might take in the future. Should we always have to rely on special legislation after the fact to allow Congress to scrutinize unusual Fed actions?

Mr. Samuelson complains about simplistic history. Allow me to complain instead about simplistic conjectures about the future–conjectures to the effect that the Fed will never again engage in the sorts of activities that warranted the Dodd-Frank audit. Such conjectures are after all implicit in claims, like his, to the effect that a permanent enhancement of the GAO’s Fed-auditing powers would only serve to “fulfill conservatives’ political agenda” by allowing Congress to “harass” the Fed and to otherwise undermine its ability to do its job.* Does Mr. Samuelson believe that the GAO “harasses” the other government departments and agencies over which it has unlimited auditing powers? If not, why does he worry that it would harass the Fed? Conservative agenda? Does he think that only conservatives (or conservatives and libertarians) distrust the Fed, and welcome GAO scrutiny of its unusual activities? If GAO officials themselves argue for relaxing present limits on their agency’s Fed-auditing powers, must they be part of a conservative plot?

Samuelson also sees “no obvious advantage” in a measure that would compel the Fed to choose and stick to a monetary rule, such as a Taylor Rule or NGDP growth rule. But while the advantage of such a rule may not be obvious to him, others may find it obvious enough. Either a Taylor or a Sumner-style NGDP growth rule would have called for less expansionary monetary policy in the mid-2000s, and for more expansionary policy in late 2009–reason enough to wonder whether, in complaining (in Samuelson’s words) that a rule “might make policy too inflexible,” Janet Yellen bothered to consider how in practice policy tends to “flex” the wrong way.

Finally, although he recognizes that the Fed isn’t infallible, and even suggests that the recent financial crisis was proof of its fallibility, Samuelson remains convinced that the Fed’s unhindered exercise of almost unlimited discretionary powers has contributed more than rule-based arrangements might to “the nation’s long-term economic health.” On what, I wonder, is this judgment based? Certainly not on recent experience. But a longer view is just as hard to square with the assertion, as Milton Friedman and Anna Schwartz went to great lengths to demonstrate. Mr. Samuelson worries that Fed “bashing”–by which he seems to mean any criticism of the Fed that seeks to justify a reduction of its considerable power–“adds to uncertainty and subtracts from confidence” upon which economic growth depends. In truth, the Fed’s actions are themselves often unpredictable, and especially so when it comes to their influence on the long-run course of prices and spending. Were the Fed really a sort of Ambrose Light of financial markets, as Mr. Samuelson imagines it to be, Fed watching, instead of being a growth industry, would be about as useful–and as boring–as watching paint dry.

But the Fed needs more than mere watching. It needs scrutiny. It needs criticism. Above all, it needs to be reined in–not for conservatives’ sake, but for everyone’s. Mr. Samuelson may not like it. But I, for one, intend to keep bashing away.


*Like many commentators who take the Fed’s side in the “audit the Fed” debate, Samuelson suggests that there only two possible kinds of GAO audits to which the Fed might be subject: simple “do the books balance” audits, as are already provided for, and ones by which the GAO would “second guess” the Fed’s conduct of ordinary monetary policy. In fact, the Fed does a lot more than engage in ordinary monetary policy, and, as the special audit provided for in Dodd-Frank illustrates, there are correspondingly many ways in which the GAO might scrutinize it’s conduct. The real debate is about these other sorts of scrutiny. To represent it as a debate about whether the GAO (or “Congress”) should be allowed to interfere with the Fed’s conduct of monetary policy is missing the point, if it isn’t something rather worse than that.

Record Spending on Transit

The American Public Transportation Association (APTA) has issued its annual press release trumpeting the growth in transit ridership. Naturally, it selectively uses the data in order to get the best media attention.

For example, it claims that 2014 ridership set a record, which is true only if you don’t count any year between 1912 and 1957, during all of which transit carried far more people than it does today with almost no subsidies. Transit carried just under 10.8 billion trips in 2014, an increase of 101 million trips over 2013 but less than the 11.0 billion trips carried in 1956 (which doesn’t even include commuter rail and several other forms of transit that APTA counts today).

Second, APTA fails to note that all of the growth in ridership can be accounted for by increased usage of the New York City subway system. While national ridership grew by 101 million trips, APTA’s own ridership report shows that New York subway ridership grew by 107 million trips, or nearly 6 million more than the national gain. Without New York subways, whose ridership grew because of New York City’s rapid job growth, APTA would have had to report a national decline in ridership. Transit ridership grew in some cities, but it declined in many others, including Albuquerque, Austin, Charlotte, Chicago, Cincinnati, Honolulu, Los Angeles, Miami, Nashville, Norfolk, Pittsburgh, Sacramento, San Antonio, San Francisco (Muni), San Jose, and St. Louis, to name a few.

Are School Choice Technocrats Needed?

In a recent blog post, Andy Smarick of the Fordham Institute declares: “School Choice Technocrats Wanted.” Smarick argues “if civil society and families are to make more decisions and the government is to make fewer,” then “reform-oriented technocrats” will have to play a greater role.

For a century, we relied on the district system to deliver urban public education. There was a single government provider, it controlled all aspects of its schools, and students’ school assignments were based on home addresses. Countless policies and practices (related to facilities, transportation, accountability, and much more) evolved with that particular system in mind.

But as that system is slowly replaced by one marked by an array of nongovernmental school providers, parental choice, and the “portfolio management” mindset, new policies (undergirded by a new understanding of the government’s role in public schooling) are needed. That requires new government activity, much like the transition from a state-controlled to a private enterprise economy requires new rules related to property rights, lending, contracts, and currency.

You Ought to Have a Look: An Overreaching Investigation

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger. While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

Over the past couple of weeks, prominent members of the climate science/climate policy community have come under attack for not toeing the (Presidential) party line when it comes to how human-caused climate change is being billed and sold via the President’ Climate Action Plan.

The attacks began with Harvard Smithsonian Center for Astrophysics researcher Willie Soon, and thanks to the attention afforded by Justin Gillis in the New York Times, were expanded by Representative Raul Grijalva (D-AZ), to include Richard Lindzen, David Legates, John Christy, Judith Curry, Robert Balling, Roger Pielke Jr., and Steven Hayward.

In this You Ought to Have a Look, we provide links to the subsequent public comments from those researchers under question (who have made them available) in response to this line of investigation—one which many have termed a “witch hunt.”

The Grapes of Wrath: California Raisins Are Back at the Supreme Court

When Marvin Horne told the United States Raisin Administrative Committee (yes, there’s a raisin administrative committee) that he wasn’t going to turn over nearly 30 percent of his crop to the government in exchange for nothing, he probably didn’t expect his case would go to the Supreme Court—twice. That little act of civil disobedience was thirteen years ago, and the Hornes now stand on the precipice of vindicating an important constitutional right—the Fifth Amendment right not to have your property taken without just compensation—as well as putting a wrench in the gears of what Justice Elena Kagan called “the world’s most outdated law.”

Like much of our agricultural policy, the Raisin Administrative Committee (RAC) is a relic of New Deal-era cartelization schemes. Trying to understand the logic behind American agricultural policy is like trying to find the logic in a Marx Brothers movie—it can’t be done and you’re better off just sitting back and laughing at the antics. Yet our agricultural policy has real-world effects on farmers like the Hornes, who are subject to the whims of the RAC as it tries to stabilize the price and supply of raisins. Sometimes the RAC pays for the raisins it takes, and sometimes not. In 2002-2003, the RAC offered far less than the cost of production for 47 percent of the Hornes’ raisins, and in 2003-2004 they offered nothing for 30 percent of the raisins. The Hornes had had enough, and they refused the order, arguing the seemingly simple point that the confiscation would be a taking without just compensation under the Fifth Amendment.

CIS’ “All Job Growth Since 2000 Went to Immigrants” Report Is Flawed

The Center for Immigration Studies (CIS) has released a number of reports purporting to show that all employment growth since the year 2000 has gone to immigrants.  The CIS report does not include econometrics. However, the report includes a few references to the economic literature (those few references present have little to do with native job displacement caused by immigration, which is the topic of the CIS report).  Nonetheless, the CIS report has gained significant attention.

The CIS method of measuring job displacement caused by immigration is not used by professional economists to study this issue.  Fundamentally, they assume a static number of jobs that is unchanging based on immigration and do not consider what the job market would look like with fewer immigrant workers, entrepreneurs, and consumers – estimates essential for understanding the actual labor market impact of immigrants.  I discuss those actual effects here, here, and here

Regardless of their flawed methods, I decided to recreate CIS’ research in order to exactly understand how they got their results.  The CIS study did not find any evidence of immigrants pushing natives out of the job market.  After spending hours recreating their data and checking it, all I can conclude is that immigrants hold about a percentage of jobs in the economy that is roughly equal to their percent of the population.  I am underwhelmed by that finding. 

Below I will present the academic literature on immigration-induced job displacement, explain how CIS got its results, and detail why their analysis of the data does not prove that “All Job Growth Since 2000 Went to Immigrants.”  (If you just want the meat, scroll down to “CIS’ Three Big Conclusions are False”).

In Suburban D.C., A Revealing Turf War

Montgomery County, Md., the suburban D.C. jurisdiction known for bans on polystyrene take-out trays, e-cigarette vaping, free bags at retail checkouts, and other disapproved elements of the mass-market economy, is now considering a ban on many common lawn and turf pesticides used by homeowners and commercial landscapers. Critics point out that since the safety of particular pesticides and their application is already comprehensively regulated at the federal and state level, the measure would put county lawmakers in the position of second-guessing safety determinations made by other, more scientifically expert levels of government. My favorite bit of the story, however, is this from yesterday’s Washington Post:

Opponents have aligned with soccer moms and dads concerned that playing field grass — also covered by the measure — will be less safe if it isn’t thickened with the help of traditional chemicals. They have an ally in County Executive Isiah Leggett (D), who wants to see [county athletic] fields exempted from the measure.