Does the Federal Reserve Seek Higher Unemployment?
Regretfully, we have a sneaking suspicion that the answer to this question is affirmative.
Let us look at the relevant Fedspeak. Fed minutes and transcripts refer repeatedly to the current and prospective level of "resource utilization." In plain English, this means EMPLOYMENT. (Yes folks, we are all, save for their Noble Mightinesses at the FED, merely "resources.") "Resource utilization" is very high, and this is dangerous. FED policy needs to reduce resource utilization --i.e., create more unemployment. This in quest of the famous "SLACK" that the FED eternally seeks. And why, you will ask, do they seek such "SLACK"? Because a high level of "resource utilization" (a full employment economy) means MORE INFLATION. In order to avoid feeding this TERRIFYING BUGABOO we need MORE UNEMPLOYMENT. Oil prices too high? Put more folks out of work. Food prices too high? Same solution. Productivity declining (inflationary warning sign), fire some workers. This is what they are after, we think.
The Phillips Curve, which raised the "strategy" of increasing unemployment to counter inflation to the level of theological precept, is long discredited. Even here, in the good old US of A we have seen that we can have a heatlhy, vigorous, non-inflationary economy in conjunction with full employment. Still the FED does NOT believe.
There is, we suspect, some atavistic "morality" at work here. Take the lad to the woodshed whenver he is showing too much spirit, just to keep him in line and to quell his animal spirits.
We would respectfully submit that it is animal spirits which have made our economy the envy of the world. We doubt the utility of injecting Calvinist morality into the equation.
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