Thursday, June 11, 2009
"Donald L. Kohn is a powerful man, as Vice-Chairman of the Board of Governors of the FED. He shouldn't have this power. Nor should the FED have the power it has. Not under the US Constitution. Not in a nation of free men and women. And not if we want a sound economy. ... Ideas like these [promoting maximum sustainable employment (MES) and stable prices over time] are superficially plausible. They are picked up and repeated in the press. They are accepted by the public. Sadly, they are accepted even by trained economists, who should know better. Tragically, these ideas embody all sorts of myths. They are all false statements. ... More generally, the Constitution does not give Congress the power to control the economic activites of Americans through central banks or in any other ways for the sake of these goals. ... But what [Kohn] and others are blind to and do not admit is that this power is not different in kind than the power of the Politburo of the Communist Party of the Soviet Union. ... And when [Congress] does apply its powers, to regulate the efficiencies of engines and the preservation of insects, its applications of power are at least as thorough and potent as those in the Soviet Union. ... Since the actual goals of those who govern through power are not the stated goals, the resulting laws are neither practical nor sensible for most of us. ... The stated goal itself, of [MES], is neither well-defined nor sensible. No one knows what the term even means. ... The FED doesn't know what employment is or even what it means. A person who has a garden at home is not counted as employed, but if he trims a neighbor's shrubs for pay, he is employed. ... If unemployment rates are used., no one knows whether the maximum sustainable rate is 3, 4, 5, 6 or some other percent. No one knows what sustainable means. It suggests a level of employment that is kept up. But who knows what rate should be kept up? ... It is impossible for voting methods to translate or aggregate personal desires for happiness into an aggregate item like [MES]. ... This goal that Kohn accepts in not different in character from the Pharoah commanding people under his rule to work producing wheat and pyramids, so as to have [MES]. ... The second goal that Congress and the FED posit is 'stable prices over time.' Central bankers worldwide constantly talk about price stability, even as they inflate their money supplies And cause prices to rise in their countries. ... Price levels are notoriously difficult to measure due to variations in prices, quality, avaliablity, location, product innovation, product improvement, product differentiation, and consumption patterns, among other things. Neither is it obvious that stability is a desireable thing. ... 'Central banks are uniquely suited to promoting price stability, and they contribute to maximum employment and growth over time by eliminating the uncertainties and distortions of high and unstable inflation.' This is pure fantasy. ... Aggregate demand ignores the wishes and choices of the millions of Americans in the complex economy. It refers only to final demand and ignores all the intermediate productive choices. It ignores the prices of different goods (relative prices) in favor of the (single) price level. ... Textbooks invariably show that long-run aggregate supply depends, not on money prices, but on real variables like labor and capital. ... The FED does not know whether it is observing short run or long run changes in prices and employmjent. It cannot separate them. In practice, the FED acts as if all changes are short run. It constantly toys with financial markets. ... Since the economy is complex, dynamic, and people act with unpredictable lags, sometimes years later, when the shocks cumulate or the economy responds, the FED responds to the shocks of its own creation. It thinks they are exogenous short-term shocks when they are the results of its own actions. ... The FED acts as if the economy's adjustments to prices and employment should be counteracted, when, in fact, the adjustments may be just what is needed to create a healthy and balanced economy. ... The goals are crude central-planning goals, as in state socialist economies. They are arbitrary and poorly defined. ... The economy does not need the FED crudely to force feed it with gobs of money and debt when it observes the economy going through a slowdown. This will undermine the patient's recuperative powers and interfere with it regaining its natual strength", original italics, my emphasis, Michael Rozeff (MR), 20 April 2009 at http://www.lewrockwell.com/rozeff/rozeff290.html.
Bravo MR. This is Austrian analysis. Kill the Fed. Now. The Master said, "Therefore by their fruits you will know them", Matthew 7:20 (NKJV). I estimate today's "price level" is about 38 times 1913's. The Fed seeks price stability? Hahahahahahaha would say the Mogambu Guru. Ludwig von Mises wrote of the "index number problem" in Human Action, 1949. MR brings up the Soviet Union. Why not, read Plank Five of Karl Marx's Communist Manifesto, 1848. Marx favored the creation of central bank.