If there is a silver lining to the uproar over the Federal Reserve’s decision to create $600 billion in new reserves in the next few months, it is the renewed public attention to the Fed’s impossible dual political mandate for stable prices and maximum employment.
To be specific, Paul Ryan suddenly has company. The Wisconsin Congressman has since 1999 proposed legislation that would let the Fed focus monetary policy solely on the goal of stable prices. This week he’s been joined by fellow Republicans Mike Pence of Indiana and Tom Price of Georgia, while Senator Bob Corker of Tennessee told us he plans to work with Mr. Ryan to introduce legislation next year that would lift the dual mandate. If the 112th Congress did nothing else, this would be worth the price of its election and a major contribution to better economic policy.
It would be a better economic policy for those who benefit from stable prices – stockbrokers, hedgefund managers, and investment bankers: whose who deal with money rather than produce goods. It does not benefit those who have skills but can’t find work; it has little to say about real time employment (people can’t change professions the way that they buy products).
Employment with inflation is better than unemployment with stable prices – in part because there are all sorts of other positive unintended consequences of a society where people are working.