The Biggest Problem at the Federal Reserve Is a Lack of Original Thought

Just watch the quarterback’s feet. That’s a variation of the words used by Hall of Fame quarterback Steve Young to explain the outcome of a football game. Young’s point is that film study of the QB’s foot movement to the exclusion of everything else would indicate to the wise football mind which team won.

Football is incredibly cerebral. Evidence supporting the previous claim concerns QB footwork once again. Even though that’s what a knowledgeable fan would watch, most watch the QB from the torso up to see if passes are completed. Most, including yours truly, don’t have a faint clue what they’re watching.

Thankfully economics is exponentially easier to understand than football. Credentialed economists won’t admit this as they vainly and obnoxiously try to “chart” supply and demand, human action, and what they imagine is the right amount of what they laughably describe as “money supply,” but economics is 1st grade relative to the staggering amounts of information that football players must internalize, and that they must be able to act on in split-second fashion.

To understand economics, and in particular whether or not an economy is growing, just watch prices. If they’re falling for popular goods and services, you know the economy is in fine shape care of booming growth.

Think the radio at the dawn of the 1920s. It was a brilliant advance, but also incredibly obscure. If you had one, you were rich.

The good news is that by the end of the 1920s, radio penetration into the American home was basically complete. What was a brilliant luxury of the well-to-do at the beginning of the ‘20s existed as a summons to producers capable of mass-producing a luxury, and a similar summons to investors willing to back producers in their quest to democratize access to what was then a must-have gadget.

The happy reality is that by the closing years of the 1920s, radios were cheap and ubiquitous. As Mark Mills pointed out in his wonderful book The Cloud Revolution, RCA was the Apple and Google of its time for making radios common. The economy was booming, but if you lived in a cave with limited access to information, all you’d need to know in order to understand economic conditions upon emerging from the cave would be knowledge of the ubiquity of radios at falling prices. Growth personified.

It’s worth keeping in mind as economists and those who report on them watch the proverbial QB from the torso up in their attempt to understand the U.S. economy. Economists and reporters who tell us what’s on the mind of economists watch the economy in the way that the typical NFL or minor league NFL (college) fan watches football. They don’t have a clue.

Evidence supporting the above claim is all around us, but reached us on Wednesday via a front page article in the Wall Street Journal on the Fed. Fed watcher Nick Timiraos reported that Fed economists fear too much optimism, exuberance, or insert your adjective from investors. Fed officials are allergic to original thought.

Indeed, they believe near monolithically that economic growth is the path to higher prices. Believing what’s untrue, they arrogate to themselves what they imagine is the power to put people out of work in order to moderate price hikes allegedly born of economic growth. You can’t make this up.

Back to reality, the investment that Fed officials fear is a sign of talent being matched with capital on the way to the mass production of formerly dear items. In other words, if you accept an incorrect definition of inflation (rising prices) as the correct one, soaring investment should thrill you. The latter signals the falling prices on the way.

Alas, Fed officials are stuck in their unoriginality. That’s the bad news. The good news is that if the Fed’s power even remotely resembled what economists imagine it to be, the U.S. economy would be too wrecked and investment too scarce for any kind of growth in the first place. So while a lack of original thought plagues the Fed, the soaring investment that concerns the central bank signals that the Fed is happily powerless to stop what it mindlessly fears.  

Republished from RealClear Markets


  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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