Politicians are human. So are central bankers. Since central bankers are human, it’s a fact of life that their personal feelings, biases and politics will inform their decisions.
It’s something to think about as allegedly free-market economic types pursue a rules-based Federal Reserve. Of the view that “monetary policy rules” will somehow restrain the actions of central bankers to the betterment of the economy, the rules crowd’s conceit fails over and over again.
For one, a “monetary policy rule” is written by human beings as is. Despite this, libertarians at the Cato Institute clamor for a “monetary policy rule” as though market intervention by central planners is ok so long as we all perhaps know what the intervention will be ahead of time. Except that we don’t. Please read on.
Cato’s monetary types should visit with its constitutional scholars to understand the folly of what they seek. Figure that judges and Supreme Court judges in particular have a rule in place that they’re supposed to abide in the form of the U.S. Constitution, but as evidenced by how varied is the interpretation of same we can see that rules are anything but.
It’s worth thinking about the above through the prism of central banking. If judges read the Constitution in a variety of different ways, what’s to be expected of central bankers when required to abide rules in ever-changing economic conditions? What if the economy is in rapid decline, or what if it’s soaring? Economists broadly believe economic growth causes inflation, while economic contraction is thought by economists to be “deflationary” despite logic indicating that the surest sign of skyrocketing growth is falling prices. How to expect central bankers to predictably follow rules when their interpretations and definitions of growth and inflation are so varied?
It brings to mind the libertarian monetary thinkers yet again. More than a few think they can centrally plan so-called “money supply” on the way to planning national income, GDP, and unemployment. In short, they seek a “monetary rule” that’s not politicized, but the rule is incredibly politicized while pregnant with conceited notions that an economy can be planned so long as the intervention rules are correct.
Count Texas Tech professor Alexander Salter as one of those self-proclaimed free thinkers who wants a monetary rule allegedly free of politics, albeit one that includes all manner of intervention suggested by him and others like him. Salter’s thinking implies that his own thinking is free of political bias, but as a human he’s political.
Worse, the very notion of an “apolitical” Fed suggests that the intervention by politicized thinkers in the workings of money, credit and rates can actually benefit the economy in the first place, and in the process boost/shrink the fortunes of the warring political parties. No, intervention fails always and everywhere (including Milton Friedman’s calls for predictable growth in the rate of so-called “money supply”) simply because markets are information personified, while interventions by central bankers are the substitution of extraordinarily limited knowledge for that of the marketplace.
In which case the better monetary rule is no rule with or without a Federal Reserve. Production is an expression of a desire to get in return for one’s production, which is why money is always circulating where there’s production as though placed there by “an invisible hand.” Let money take care of itself. It will.
Which means that even if DOGE never finds its way to our wholly superfluous Fed such that this full employment act for economists remains open, fear not. Markets work no matter what the Fed does, and money facilitating the exchange of actual wealth will always be where production is no matter what. No rules needed.
