Loose Ends... Vol. LXIV

This is the sort of macroeconomic "theory" that burns me up... more from Paul Krugman:

... let's use the Taylor Rule estimated by Glenn Rudebusch at the San Francisco Fed... This rule describes past Fed policy quite well.

Applied to current data, the rule says that the Fed funds rate should be - drum roll - minus 5.6 percent. You can’t do that, of course, so we’re very hard up against the zero lower bound. And if you think the Taylor rule was a good guide to policy in the past, the Fed shouldn’t start to raise rates until the rule starts, you know, yielding a positive number.

I don't doubt that such a rule has historically been a good predictor of the Fed funds rate. But should it? Is the economy really so simple that the proper cost of money can be decided by a simple linear equation involving the distorted government statistics of inflation and unemployment? Has the historical rate actually been correct? (No. No. And no.)

The ruling class of macroeconomists not only think that they can plan and control the economy - no, that's not enough. They use relatively simple mathematics to determine their policies which are supposedly smarter than the dynamic market forces of hundreds of millions of people.

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The Nobel Peace Prize for 2009 has been awarded to Barack Obama. You can read the press release here. Nominations had to be received by February 1 which means that Obama had been in office for no more than eleven days before his nomination. However, I did also read that "the Committee may on that occasion add further names to the list, after which the nomination process is closed."

Obama apparently won based on his efforts to change the reputation of the U.S. which festered in the international community under the Bush administration. It appears that it is his promises, not his actions, which cemented the victory. Meanwhile, Obama is mulling an increase in troops in Afghanistan, potentially seeking regime change therein, and has yet to place significant public pressure on Israel, India or Pakistan to sign on to the Nuclear Non-Proliferation Treaty.

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Congressmen Ron Paul (R-TX) and Alan Grayson (D-FL), two of the fiercest opponents of the financial status quo, have submitted a letter to Senator Chris Dodd (D-CT) who is Chairman of the Senate Committee on Banking, Housing, and Urban Affairs.

The letter asks Dodd to delay the confirmation of Ben Bernanke to continue in his capacity of Chairman of the Federal Reserve. This seems like a simple and poignant request. The economy has experienced a major crisis which is almost universally agreed to be triggered by the financial sector. The Federal Reserve has regulatory authority over the banking system. Its monetary policy authority is conducted with the goals of maximum employment, stable prices, and moderate long-term interest rates. Read their mission statement.

While Bernanke has received many rave reviews for saving the economy, he was also in charge prior to the crisis. Regardless of your opinion on what Bernanke has done since the collapse of Lehman, his record in leading the Fed in its self-declared mission is questionable. Further, his creative, yet secretive, and legally dubious actions since Lehman should be investigated before we declare him our savior.