Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Why is the Fed no longer effective?
In a June 22 Seeking Alpha commentary (The Fed, the Yuan and the Failure of Diplomacy), Peter Morici accurately discussed U.S. economic history, pointing out the ineffectiveness of the Federal Reserve in recent years:
Fed policy is much less relevant to US growth and price stability than in the days of Fed chairman Paul Volcker (1979-1987), because China's yuan policy has substantially limited the importance of Fed interest rate decisions by severing the historic link between short interest rates - like the federal funds rate it targets - and long rates on mortgages, corporate bonds, and the securities banks use to finance lending on cars and credit cards.
He is thinking through the problem in the same way that we have been. As usual, he is way ahead of most of the economic profession, which is still living in a dreamworld in which unilateral free trade is a good policy.
But my father, son and I are actually still a bit ahead of Morici here. We are advocates of the economic philosophy called "monetarism." The founder of monetarism, Milton Friedman, was my father's dissertation advisor at the University of Chicago.
Back on December 4, 2008 (Keynesian borrowing won't solve our economic problems), we enunciated the general principles that should guide economic policy. We wrote:
The central idea of monetarism is that governments are too short-term in their thinking unless they are bound by sensible long-term rules. Monetarists have always advocated the first two rules below. We would add the third:
Last 100 Years
Real Estate Taxation
Journal of Economic Literature:
Atlantic Economic Journal: