Times are a changin' at the Fed, finally!
Jay Powell at the helm of the Federal Reserve and Janet Yellen, his predecessor and now Secretary of the Treasury are pushing hard to get people safely back to work as soon as possible. Amen.
The moment is now. Help is on the way. We’ve waited over a decade to see monetary and fiscal policy for all Americans—leaders of the Civil Rights movement, union stewards, community activists even longer. It’s finally here.
The country is emerging from tragedy, and it’s easy for policy, especially monetary policy, to get lost in the shuffle. This morning I talked about the new efforts at the Fed to push on maximum employment and fight systemic racism in the economy.
This sea change at the Fed is close to my heart. I started as an economist there in the summer of 2007. I was an expert on consumer spending throughout the Great Recession, the painfully slow recovery, and the long-awaited, nearly short-circuited expansion. I don’t think we’d reached full employment in February 2020, but we got closer than in decades, if not ever. Tragically, we are 9.5 million jobs away from it.
That interview follows from my New York Time Opinion piece yesterday, “The Years of Work Behind Washington’s Best-Liked Man: The Fed chair, Jerome Powell, has become a popular Main Street champion. Here’s a history of the advocacy that made this possible.” (That piece is a labor and love. I am blessed to have a platform for it.)
It took over 40 years for the Federal Reserve to take its dual mandate from Congress seriously. Every American owes a debt of gratitude to the Civil Rights movement and every Black American who continues to push for racial economic justice. I am an avid student of the Fed, including its history and its culture. Sometime in the morass after the Great Recession, I started to read about the maximum employment mandate. I share in the piece some of what I learned. The inspiring:
“The spirit of this law can actually be found in the calls for economic justice within the Civil Rights movement: Though some forget, the March on Washington in 1963 was, officially called the March on Washington for Jobs and Freedom. Over a decade later, in 1978, Coretta Scott King was there when President Jimmy Carter signed the Humphrey-Hawkins Act, requiring the Fed chair to testify twice a year before Congress on its progress toward stable prices and maximum employment too. “
And the deeply disappointing:
“After defeating inflation, Paul Volcker was lionized among central bankers and Wall Street, but mistrusted by Main Street. (As his Times obituary explains, after he put sky-high interest rates in place “farmers on tractors circled the Fed’s headquarters” and “auto dealers sent the keys to cars they could not sell.”) Mr. Volcker and the Fed had all but trampled the green shoots from the Great Society. It wasn’t until September 2010 — more than three decades after it got the dual mandate — that the institution even mentioned its maximum employment in a public statement following its eight policy meetings per year.”
Yes, September 2010! My amazing editor, Talmon Smith, who is learning more about the Fed than he probably ever dreamed, had me triple check that date. How could that be? I told him when I first read it I wanted to be shocked, but I was not.
Thankfully, times are a changin.’ Jay is carrying the torch for Main Street through its biggest test ever. As I discuss in my piece, Janet Yellen, along with many other leaders and staff at the Federal Reserve (including Lael Brainard, David Wilcox, Lil Shewmaker, Anna Alvarez-Boyd, Ivan Vidangos, Joanne Hsu, Cassandra Duchan) have all pushed the Fed to be more diverse and inclusive, in our policies and our internal practices. (My “economics is a disgrace” blog post underscores why the status quo was unacceptable.) Outside the Fed, I have held Representative Maxine Waters up as a hero—wow, did she light a fire under the Fed’s ass. Thank you! Fed Up, a monetary policy advocacy group, does incredible work too.
The Fed needed the push. It got it. A fun fact about Fed culture. Pushing for change is like moving a mountain. Frankly, earthquakes and volcanic eruptions—my specialty—are necessary. And then when it finally moves, always after years and years of deliberations, IT DOES NOT MOVE BACK. It took me a while as a junior staffer to figure this out. Patience, perseverance, and rock solid arguments do pay off at the Fed.
So the Fed is ready for the critics. I hate to break it to Larry Summers, but there are thousands of pages over several years making the economic case for the Fed’s current approach. Much of it was done quietly in private and done very well. Unlike the robber barons of academia, the Fed does its homework and it does not pull shit out of its woo-hoo valve. (Technical macro forecasting term that I learned from my first Division Director, Dave Stockton.)
Jay stands on a decade of introspection; reams of research and data; a new framework for policy that puts employment on part with inflation; and a very public commitment to stay the course. Good luck, haters. You don’t stand a chance.
Now, before I pass out the party hats, let’s get real. The gatekeepers, whether old-school, musty macroeconomists or establishment politicians and wonks, who have not updated their thinking in several decades are aghast.
We scraped by the first round with the Very Serious People:
“Now comes the big test. Life will be more regular again soon. But not everyone who lost work will have their old jobs again or new jobs. Can he stand up for Main Street when Wall Street and many high priests of macroeconomics in the academic and think tank spheres freak out about inflation as the economy reopens? The hand wringing over the size of the $1.9 trillion relief bill passed two weeks ago was just the start.”
The next one will be brutal:
If you think the hawks on television and Twitter are loud now, just wait until they see a temporary uptick in prices. They’ll be deafening. Some are inside the Fed itself and will be voting on its policies. That said, there are also many wonks at the Fed who have spent a decade shoring up technical defenses against outdated inflation fears.
But their words in long-winded memos are not enough. Good intentions are not enough. It’s what the Fed does this year and the next — in the face of inevitable criticism from incredibly powerful voices stuck in the past — that will ultimately matter most.
I say bring it on, boys. Zombie ideas in macroeconomic policy destroyed millions of lives during and after the Great Recession. MILLIONS. FOREVER. Let’s lay it all out on the table. Let me explain to you why cash relief in a recovery to families is essential and why inflation fears are overblow and rest on bad science. I am not alone. We can yell louder. You know why? Because we care and we know we must.
The fight for jobs means the most to those who have the least:
Inflation hawks seldom remind us that wealthy investors are hurt by inflation and lower-income borrowers are helped: For example, paying off a fixed-rate loan is easier when wages and prices rise by, say, 5 percent a year rather than 2 percent. People have more money to pay the debt, and when creditors get their money back, it’s worth less. When framed this way, zealously guarding against any significant uptick in inflation feels less like responsible stewardship and more like a classist double whammy — increased cost of debt and fewer jobs.
Inflation hawks say it with me: People don’t like inflation, but they hate having shit jobs and no money to pay their bills or feed their kids. Macro is hard. It’s not that hard.
We are more than a year into a cataclysmic pandemic and economic crisis. We can see the light at the end of the tunnel, and it no longer appears to be an oncoming train. We are not out of the tunnel. We are not out of danger. Janet and Jay that. Anyone who is awake at the wheel—sadly many like Larry Summers are not—know that fact. Congress and the Fed are getting a lifeline to people and a path to economic security. The American people deserve it. Frankly, they deserve more than we can give them.
If you're interested in the history of the fight for full employment, you might like this 1966 report to congress on the ever present worry of robots taking our jobs. In which they find its probably not a big deal but that we absolutely should implement a Job Guarantee program because any form of involuntary unemployment is a moral failure and leaving economic growth on the table. It likely also played a role in getting the dual mandate.
Just finished your Hexapodia episode - great stuff! Also pleased someone at the NYT knew enough to ask you to do that piece on the New Fed.
Hope Noah and Brad have you back to do automatic stabilizers. I’m old enough to recall them fondly, and they might even be (barely) within DeLong’s living memory. He’ll certainly know their history and how they disappeared from the macro toolkit.
Keep the hits coming,