Comments for The Fed Has Always Sought to Counteract Recessions at http://www.cepr.net , comment 1 to 4 out of 4 comments http://www.cepr.net Sun, 19 May 2013 00:20:46 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/the-fed-has-always-sought-to-counteract-recessions#comment-19092 Yup, skeptonomist. [i]The claim that the Fed needs to raise rates to prevent erosion of "middle-class incomes" is thus exactly contrary to what is shown by the historical record. A claim that the Fed prevents inflation by raising rates is also contrary to fact.[/i] The crazy cult belief that raising rates MUST prevent inflation, MUST be disinflationary has been traced by Geoffrey Gardiner back to one [url]http://en.wikipedia.org/wiki/John_Horsley_Palmer[/url] Not to criticize the estimable J. Horsley Palmer, but why are nearly all economists members of his cult? When centuries of evidence - Gibson's Paradox - argue against it? Sure, it can happen that way - but often, maybe usually, not. There are lots of effects going on in different, cancelling directions. Often enough, like right now, like during WWII, low T-bond rates should be disinflationary, not the reverse. QE is probably anti-expansion, just like it was in Japan, for which the name was coined. As you say, the Fed became high priests of the cult in the 60s, starting with the "independence" granted by the misbegotten Treasury-Fed accord. The high interest rates of the 70s/ early 80s probably increased inflation in the long run. The rate lowerings that Dean extols were just the Fed half-repairing the enormous damage they had just done themselves - which had increased both inflation (maybe) & unemployment (definitely). - Calgacus Mon, 24 Sep 2012 13:54:28 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-fed-has-always-sought-to-counteract-recessions#comment-19088 bernanke follows randian alan greenspan in being responsible for the transfer of capital & lower salaries & wages for the poor & middle class. only a complete nitwit would argue that the fed's policies help anyone except the wealthy. that's why it's frustrating to have such a nonsense choice of obama vs romney. romney will accelerate the transfer of more wealth moving from the poor upward. obama will too, only not as rapidly. some choice. - mel in oregon Mon, 24 Sep 2012 11:30:28 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-fed-has-always-sought-to-counteract-recessions#comment-19076 What is really significant about the record of the Fed in the 80's is that it did raise its policy rate as high as 19% in a futile attempt to prevent inflation. In doing so it caused unemployment to go as high as 10.8%. This in combination with actual inflation (again; not prevented by the Fed) caused real wages to crash: http://www.skeptometrics.org/WeeklyWages/WeeklyWages.htm Thus: when the Fed attempts to prevent inflation by raising rates, the result in the real world is a decrease of real wages. In contrast, in the 40's and 50's the Fed did not raise rates in several inflation spikes, and wages kept rising. During WW II and the Korean war inflation was at least partly driven by labor shortage, so as Dean says real wage income was not harmed. The claim that the Fed needs to raise rates to prevent erosion of "middle-class incomes" is thus exactly contrary to what is shown by the historical record. A claim that the Fed prevents inflation by raising rates is also contrary to fact. - skeptonomist Mon, 24 Sep 2012 04:10:59 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-fed-has-always-sought-to-counteract-recessions#comment-19070 True, but the Fed also is very fast to change course when full employment approaches. Jamie Galbraith says that the Fed has a "fear of full employment target." - Matias Vernengo Mon, 24 Sep 2012 03:18:46 +0100