#48 The Goals of the Fed

Did you get to see our live stream on the Unpopular Opinions show?

The three stated goals of the Federal Reserve are:

  1. maximum sustainable employment
  2. stable prices
  3. moderate long term interest rates

All three of their stated goals are the opposite of what is necessary for the flourishing of a society.

We’ve covered recently in the New Deal series how labor is where human capital meets inefficiencies in production, and unemployment can actually be a sign of technological disruption, which makes everyone’s life better (access to cheaper and higher quality goods and services). In addition, low unemployment historically correlates with periods of upcoming economic recession.

We’ve covered in our interview with Jeff Booth why stable prices are an impossibility at best and destructive at the worst. Falling prices are better for the consumer and mean that entrepreneurs are doing their job correctly.

And to a certain degree, we’ve covered how artificial manipulation of interest rates, disrupts economic calculation of the entrepreneur. In a free market, interest rates are determined by the accumulation of capital which is ready to be invested. Manipulation of that interest sends false signals, for example, to the Faustman formula.

In fact, in an attempt to maintain stable prices and manipulate interest, the Fed actually creates incentives for financial engineering and gross mal-investment. Ventures which may not ordinarily be profitable in the market might be a huge success. Likewise ventures which ordinarily may have succeeded might fail. In this case, the actions of individuals (especially entrepreneurs) do not accurately reflect the underlying realities of the market economy.

But if the stated objectives of the Fed are imperfect from the get go, well then certainly it is no wonder why the means of achieving these ends are so destructive. While inflation and liquidity injection create a host of incentives from which bureaucrats can be enrich themselves, we are told they are a necessary evil for the Fed to do its job.

Fiat academics push forward even more extreme concoctions of devastation. Policies like Modern Monetary Theory are lauded instead of laughed at. Surely, the longer the inevitable return to the normalcy of free market action is delayed, the more inane and absurd the policy suggestions and theories will be from the fiat academics.

The heroin addict can solve the problems of a painful withdrawal with another fix. We live in a world where academics point to the withdrawals as the underlying problem rather than a symptom of a much more dangerous addiction.

One can only keep reality at bay for so long, and she is a cruel mistress when neglected.


Book of the Month:

The Ethics of Money Production by Jorg Guido Huulsman

-“Nicholas Oresme wrote an entire treatise that exposed the physical alteration of the coinage as a fraudulent and harmful practice”

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