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Home Publications Blogs Beat the Press Creating Jobs: Oh, It's So Complicated!

Creating Jobs: Oh, It's So Complicated!

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Thursday, 01 September 2011 05:22

The Post notes the division among the members of the Fed's Open Market Committee over the best course to reduce unemployment and maintain price stability. It then tells readers,

"The Fed will always have its critics, internal as well as external, and that is as it should be in a democracy. It would be more honest, though, if purveyors of economic solutions — whether in Washington, on Wall Street or in the media — displayed a little more humility and a little less certitude."

It is worth noting that these lines were written by people who are employed at relatively well-paying jobs. People who are not employed or working at low-paying jobs with little security and few benefits might feel more need for action.

It is remarkable that the relatively well-paid Post editorial writers failed to notice the specifics of the division in views at the Fed. There are 5 Federal Reserve district bank presidents who are voting members of the open market committee. For practical purposes, these bank presidents are appointed by the banks within the district. These 5 bank presidents voted 3 to 2 against the statement committing the Fed to maintaining a near zero interest rate for the next two years.

By contrast, the 5 governors, all of whom are appointed by the President (3 appointed by President Obama, 1 appointed by President Bush and 1 [Chairman Bernanke] appointed by both) and approved by Congress voted unanimously in favor of this statement. This remarkable gap between the views of people appointed by democratically elected officials and the views of people selected by the financial industry should have jumped out at anyone reviewing the minutes and the vote. 

The financial industry tends to be very concerned about inflation, since this erodes the value of its assets. They are less concerned about unemployment, since top executives in the industry can do very well even in a time of high unemployment. Profits for the financial industry hit a record as a share of corporate profits in 2010. On the other hand, Fed governors who are appointed through the political process are likely to be concerned about unemployment, since this jobs are the primary concern for most people.

This break suggests that it is not just confusion that caused the divisions within the Fed, it was fundamental differences in interests. The Post editorial writers should have been able to see this.

Comments (9)Add Comment
Fed's relationship to the banks
written by deanx, September 01, 2011 7:47
I think many of us who read your blog understand the distinctions between the OMC and the Governor's. I do not chide the regional presidents' for their pro-bank positions, they are merely representing their constituencies.

I do get angry at the Press representing the OMC as if it was part of our Democracy. I agree the media does an awful job describing the Fed and how it works and leads to willful misunderstanding among politicians and economists alike.
...
written by denim, September 01, 2011 10:11
Looks to me like the law for mandating the creating ofjobs is all done...just do it:
http://tier5.webs.com/apps/for...ployment-

www.federalreserve.gov/pf/pdf/pf_2.pdf

Or just what is the problem that the President cannot execute this law today?
Link to http://preview.tinyurl.com/FullEmploymentLaw
written by denim, September 01, 2011 10:16
Long URL was truncated. This is a good site re unemployment info too.
http://preview.tinyurl.com/FullEmploymentLaw
...
written by freebird, September 01, 2011 11:37
So the bank presidents enjoy sitting on piles of worthless mortgage paper? And they don't mind that the stock options they accumulated over this past decade will be underwater for the foreseeable future? Funny I thought it was these clowns who were blowing the bubbles!

The people who have the most to lose in an inflationary environment are retirees getting by on moderate fixed incomes and pensions that aren't indexed to cost of living, not the masters of the universe.
Fe reserve Ed 101
written by Wayne burkhart, September 01, 2011 12:30
Thanks for the post! Few of us know enough about the Fed--and the press needs your challenge. This senario reminds me of the mantra in my course at MiSU on the Economics of Public Choice--"...for every policy alternative we must ask--who benefits, and who pays." Maybe there's a flaw in the constitution/authority of the open market committee.
The Deserted Village
written by Scott ffolliott, September 01, 2011 12:55
"Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay:"

Oliver Goldsmith
Media...
written by shrpknvs, September 02, 2011 5:52
@deanx,

"I do not chide the regional presidents' for their pro-bank positions, they are merely representing their constituencies."

Media also represent their constituencies - their owners and advertisers. If you have not read please pick up Manufacturing Consent by Edward S. Herman and Noam Chomsky

Another good read on the type of "democracy" we have is Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems by Thomas Ferguson.
...
written by shrpknvs, September 02, 2011 5:58
@Wayne burkhart,

Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider is a good read on the FED, very informative.
Maybe there's a flaw in the constitution/authority of the open market committee.
written by shrpknvs, September 02, 2011 6:05
Yes, the founders and their views.

"The people who own the country ought to govern it." - John Jay
Source: http://www.bartleby.com/73/764.html

James Madison, the "Father of the Constitution” or the Virginia Plan and the author of the United States Bill of Rights:

The man who is possessed of wealth, who lolls on his sofa or rolls in his carriage, cannot judge the wants or feelings of the day-laborer. The government we mean to erect is intended to last for ages. The landed interest, at present, is prevalent; but in process of time, when we approximate to the states and kingdoms of Europe, — when the number of landholders shall be comparatively small, through the various means of trade and manufactures, will not the landed interest be overbalanced in future elections, and unless wisely provided against, what will become of your government? In England, at this day, if elections were open to all classes of people, the property of landed proprietors would be insecure. An agrarian law would soon take place. If these observations be just, our government ought to secure the permanent interests of the country against innovation. Landholders ought to have a share in the government, to support these invaluable interests, and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority. The senate, therefore, ought to be this body; and to answer these purposes, they ought to have permanency and stability.

~ Statement (1787-06-26) as quoted in Notes of the Secret Debates of the Federal Convention of 1787

I love this part, it's worth another read: "...our government ought to secure the permanent interests of the country against innovation. Landholders ought to have a share in the government, to support these invaluable interests, and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority."

Source: http://books.google.com/books?...=possessed of wealth, who lolls -&f=false

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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