Liberal Activism!: Federal Reserve Jackson Hole Edition


Kevin Cirillo shows up in my inbox:

Kevin Cirilli: Activists Confront Fed Leaders to Warn Against Rate Hike

And my first reaction: Is he talking about former Treasury Secretary and Harvard President Lawrence H. Summers? Is he one of the “activists” in question?

Lawrence Summers: The Fed Looks Set to Make a Dangerous Mistake: “the Fed has put its price stability objective into practice by adopting…

…a 2 per cent inflation target. The biggest risk is that inflation will be lower than this–a risk that would be exacerbated by tightening policy…. Tightening policy will adversely affect employment levels… increase the value of the dollar, making US producers less competitive…. This is especially troubling at a time of rising inequality…. There may have been a financial stability case for raising rates six or nine months ago…. That debate is now moot…. At this moment of fragility, raising rates risks tipping some part of the financial system into crisis, with unpredictable and dangerous results.

Why, then, do so many believe that a rate increase is necessary? I doubt that, if rates were now 4 per cent, there would be much pressure to raise them. That pressure comes from a sense that the economy has substantially normalised… and so the extraordinary stimulus of zero interest rates should be withdrawn…. Whatever merit this view had a few years ago, it is much less plausible as we approach the seventh anniversary of the collapse of Lehman Brothers. It is no longer easy to think of economic conditions that can plausibly be seen as temporary headwinds…

No, I do not believe that LHS is on a plane to Jackson Hole tomorrow. But I am going. This is perhaps the first time I have been described as a “liberal activist”:

Liberal activists are descending upon a global economic conference in Jackson Hole, Wyo., to criticize Federal Reserve officials… The liberal Center for Popular Democracy has launched a ‘Fed Up’ campaign to urge the central bank’s chairwoman, Janet Yellen, and her team of policymakers against raising interest rates…. ‘The economy remains far too weak to slow it down. We shouldn’t mince words — when the Fed raises interest rates, it’s doing that to slow the economy down,’ said Ady Barkan, Fed Up campaign director, on a conference call with reporters. He called the prospect of the Fed raising interest rates ‘an insane perspective to take and an insane policy to take at the moment.’

The group is sending about 50 activists to the annual Economic Policy Symposium, which includes members of the Federal Reserve, global bankers and top economists. The activists will hold ‘Teach Ins’ that coincide with the annual summit. Among the planned events is one titled, ‘Do Black Lives Matter to the Fed?’ — a nod to the national movement to highlight policies that disproportionately hurt the African-American community….


AP: Fed Up Group Plans Counter Jackson Hole Conference: “Federal Reserve Chair Janet Yellen may be skipping this year’s annual gathering of central bank policymakers in Wyoming…

…but a group of demonstrators will be making their second appearance at the elite gathering. And this year they will be conducting their own teach-in…. The Fed Up coalition, made up of community activist groups, has rented a conference room in the same hotel where the Kansas City Federal Reserve Bank will be holding its annual Jackson Hole conference starting Thursday… will bring in low-wage workers from around the country who are struggling to make ends meet to emphasize the need for the Fed to do more to attack income inequality….

Ady Barkan with the Center for Popular Democracy and campaign director for Fed Up said that before Fed officials ‘can have a real discussion of raising interest rates and slowing the economy, they should understand firsthand who it would effect.’… In addition to arguing that raising rates now would be premature, the group will hold discussions on ways to reform the Fed’s current selection process for the presidents of the Fed’s 12 regional banks….

While the Fed announced in May that Yellen would not be attending this year’s conference, Fed Vice Chairman Stanley Fischer is scheduled to deliver comments on inflation during a panel discussion at Jackson Hole on Saturday. Financial markets will be closely examining those comments for any hints about whether the Fed is still likely to boost interest rates at its Sept. 16-17 meeting despite a huge sell-off in recent days in stocks that saw the Dow Jones industrial average fall another 588.47 points or 3.6 percent on Monday.

Back when the Federal Reserve was founded, it was subject to harsh criticism from the banking lobby for giving non-bankers too much influence over the new organization–that it was not enough under the thumb of the bankers:

Roger T. Johnson: Historical Beginnings: The Federal Reserve: “On June 23, 1913, President Wilson appeared before a joint session of Congress and presented his program…

…pleaded for a banking system that would provide for an elastic currency and that would vest control in the government:

so that the banks may be the instruments, not the masters, of business and of individual enterprise and initiative.

Most bankers did not like what they heard. Particularly vigorous—and often very bitter—in their opposition were the big-city bankers, especially from New York. Conservatives also lambasted the bill as a radical break in… laissez-faire…. The bankers… favored… a central bank under banker control, disliked the framework of government regulation, dominated by political appointees… disliked the fact that the new Federal Reserve banks would be the sole holders of reserves… disliked compulsory membership… criticized the bill’s assault on “private rights”… termed the bill a Democratic party measure… dominated by [the Democratic Party’s] southern, western, and “anti-business” elements. The New York Times referred derisively to the “Oklahoma idea, the Nebraska idea,” clearly pointing to Senator Owen and Secretary of State Bryan who, as we have seen, played a major role in writing the bill and adding the government control through the Federal Reserve Board….

The Times said [that the plan]:

reflects the rooted dislike and distrust of banks and bankers that has been for many years a great moving force in the Democratic party, notably in the Western and Far Western States… goes to the very extreme in establishing absolute political control over the business of banking.

The New York Sun… the spokesman for Wall Street at that time, called the bill:

this preposterous offspring of ignorance and unreason… covered all over with the slime of [soft-money] Bryanism….

The vast majority of the nation’s bankers—country and city—still strongly opposed the bill, often with the bitterest hostility; a San Antonio banker, for example, called the bill a “communistic idea.”… Meeting in Chicago in late August with a commission of the American Bankers Association, the presidents of 47 state banking associations and 191 clearinghouse associations raised many objections to the Administration’s banking reform. They made it clear that they wanted the Aldrich plan, with one central bank generally controlled by bankers and generally independent of government regulation.

According to Wilson’s major biographer, Professor Arthur S. Link, the Chicago conference decisively altered the controversy over the banking issue, making the Administration more
hostile to the bankers publicly opposing the Federal Reserve bill. Until this time Wilson and his major advisers had believed that the bankers, despite their rhetoric, would in the final analysis work responsibly for the Administration plan. The Chicago manifesto appeared to kill that hope and sharply etched the broad differences between the majority of the banking community and the Wilson Administration. From then until final passage of the Federal Reserve bill in December, the Wilson Administration tended to regard banker opposition as essentially irreversible…

The bankers’ fear was that the new Federal Reserve system would be a hostile regulator, tightly constraining their businesses and curbing their profits. And the bankers’ fear was that the new Federal Reserve would be excessively attached to inflationary soft-money monetary policies–after all, the leader of the soft-money wing of the Democratic Party, then Secretary-of-State William Jennings Bryan, endorsed it. Political appointees making up the Board of Governors, regional banks directors dominated by public and Board-appointed members, the banker “representatives” on regional bank boards a solid minority–how could this regulatory agency do its job of providing a comfortable life for the banking industry it was set to regulate?

Good questions all. Yet–with the singular notable exception of the 1965-1979 later Martin-Burns-Miller period–nobody who is not a wingnut goldbug argues that the Federal Reserve has been unduly attached to inflation. And the perennial problem has been that the Federal Reserve–even with an entire Board appointed by the president and confirmed by the senate, even with regional bank boards dominated by the public Class B and the Board-appointed Class C directors–has been too attached to the interests of the financial system when those are at odds with the interest of the public.

Paul Krugman has taken the latest whack at why this has turned out to be so:

Paul Krugman: Rate Hike Fever: “Larry Summers argues that a Fed rate hike would be a big mistake…

…I completely agree. Yet he also suggests that the Fed ‘seems set’ to do this foolish thing. Why?… [This] is not like debating monetary policy with the seventeen stooges conservatives whose doctrine tells them that fiat money will turn us into Zimbabwe any day now, and are impervious to evidence. The Fed chair is Janet Yellen; the vice chair is Stan Fischer… salt-water economists whose underlying macro worldview is surely very much like Larry’s, or mine, not least because we studied under Stan himself. So why the difference on policy?… Something about being on the inside is making the Fedsters more rate-hike prone…. Pressure from the usual suspects–the constant sniping against easy money–may play a role. But I also suspect that a lot has to do with the urge to resume a conventional central-banker role. The whole culture of central banks involves saying no to stuff people want, taking away the punch bowl as the party gets going, having the courage to do unpopular things; everyone wants to be Paul Volcker. The Fed is really, really eager to return to that position–and is, I fear, engaging in wishful thinking, believing much too readily that a return to normalcy is appropriate. It’s not.


Paul Krugman: Insiders, Outsiders, and U.S. Monetary Policy: “I ran into Olivier Blanchard… [another] of the people who either make monetary policy or comment on it…

…from fairly influential perches [and] are members of what you might call the 1970s Cambridge mafia. Olivier, Ben Bernanke, Ken Rogoff, Mario Draghi, and yours truly all overlapped at MIT… Larry Summers was at Harvard at the same time… just about everyone was Stan Fischer’s student…. Unusually, Olivier and I do have a significant disagreement right now, over US monetary policy…. I’m very worried that the Fed may be gearing up to raise rates too soon; he’s sanguine…. Our disagreement over coffee is part of a wider split. Among the Cambridge mafia… there’s a surprisingly sharp divide… [that] seems to depend on one thing: whether the economist in question is currently in a policy position…. We don’t have access to different facts; we don’t… have different economic models. It’s an uncertain world, but why do those in office come down on one side of that uncertainty, while those outside come down on the other? Well, even smart, flexible people can fall prey to incestuous amplification. And I worry that this is what is happening to the insiders. On the whole, it seems less likely for the outsiders, although it’s true that the Keynesian econoblogs form what amounts to a tight ongoing discussion group that could be doing some amplification of its own…. But if you ask me, there’s a worrying complacency among the insiders right now, and I would urge them to consider the potential consequences if they’re wrong.

I am not at all confident he has it right. But this is a serious problem. And we are showing up in Jackson Hole to remind the people in the conference rooms upstair from us that they need to worry about whether their view of the world is a little bit too accommodating to the interests–or I would argue the irrational prejudices–of those whom they are supposed to be regulating in the public interest.

August 25, 2015

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