Richard Fischer Chernyshevsky ; Kocherlakota, the Scrivener

Exciting news – Goldman Sachs economics team – lead by Jan Hatzius, who I am a fan of – is now arguing for a nominal GDP target as a way to get monetary policy working to get us to full employment.  Here is their analysis, we’ll have more later on it.

With this news, it might be worthwhile to examine the latest speeches from the dissenters on the Fed, those who are keeping the Fed from doing more to tackle unemployment.  What are they saying these days?

Richard Fischer Chernyshevsky

To start, what does Dallas Federal Reserve President Richard Fischer have in common with 19th century Russian revolutionary and Lenin influencer Nikolay Gavrilovich Chernyshevsky?

To back up, Richard Fisher is a voting member on Federal Reserve monetary policy, and thus one of the crucial figures in determining how and when we come out of this recession. And he only cares about inflation, and doesn’t seem to put any weight on unemployment. He’s been dissenting since the beginning, even going so far as to believe that money was too tight in March 2008.

So what does he think now? Wall Street Journal:

Federal Reserve Bank of Dallas President Richard Fisher said the Fed’s recent moves are giving lawmakers an excuse to avoid making hard choices on fiscal policy, the Associated Press reported Tuesday.

“The more we offer accommodative monetary policy, the less incentive they have to pull their socks up and do what’s right for the American people,” Fisher told the news service in an interview.

Shorter Richard Fisher, using the phrase Chernyshevsky is reputed to have come up with: “the worse the better.”  The worse it gets for people, the better the opportunities for our ideology to be put into action.  I never thought I’d have to go digging into the immediate influences of Vladimir Ilyich Lenin to get a handle on how “independent” monetary policy works in the 21st century, but here we are.

Fisher has long argued that America must look like Texas immediately, arguing that “fiscal authorities…must reboot our entire system of economic incentives and come forward with an updated tax and spending and regulatory regime that incentivizes businesses to invest.”  No doubt he wants to sledgehammer Social Security and replace Medicare by giving grandma a coupon and burn Dodd-Frank to the ground.  So do lots of conservatives.  The idea that he isn’t going to run an “accommodative” monetary policy in order to give cover to deficit hawks to carry out the Congressional policy he’d like to see at this moment is crazy.  Especially when so much of our deficit is the result of people not working, thus not paying taxes – he’s creating the deficit that the far-right will then solve on the backs of the poor.

That he can get away saying this must be something about the Federal Reserve.  Imagine the head of FHFA, in charge of the GSEs, hated teachers’ unions.  Then imagine he said he wasn’t going to consider doing foreclosure workouts because foreclosures devastate local school budgets, and all those broken budgets makes for a great time to break the backs of the teacher’s unions.  It would be obvious something has gone terribly wrong governance-wise, wouldn’t it?  Why not here?

Kocherlakota, the Scrivener

I don’t get Kocherlakota here:

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the central bank has put its credibility at risk by easing during a year in which inflation rose and unemployment fell….

“As the economy recovers, the FOMC should respond by reducing the level of monetary accommodation,” Kocherlakota said.

“The FOMC should only increase accommodation if the economy’s performance, relative to the dual mandate, actually worsens over time,” he said, referring to the central bank’s goals of maintaining price stability and ensuring full employment.

This doesn’t make any sense.  First of all, as Scott Sumners points out, an historical comparison would be Kocherlakota wanting to tighten monetary policy in 1933.  It’s considered a major disaster when monetary policy was tightened in 1937-38.  Tightening in 1933 would have been even worse.

The logic is also off – “the economy is getting better, so we should ease up on monetary policy” is only true if monetary policy was right to begin with.  Whether you think we are in trouble because we’ve hit “a liquidity trap” and zero-lower bound, or because we haven’t aggressively targeted nominal GDP, one of our major problems is that monetary policy wasn’t enough to begin with.

As Nick Rowe perfectly put it in Sumners’ comments, “If your car is gaining speed, you ought to ease your foot off the gas pedal. Except when you are already going too slow to begin with. Levels, and rates of change.”  To help myself make sense of what the answer would be when you see all these “why are you more aggressive with monetary policy?” questions, I like to think of Kocherlakota simply answering, Bartleby-style:  “I would prefer not to.”

This is even more confusing because key economic indicators are far worse than we had imagined at the beginning of the year, when Kocherlakota has said monetary policy was optimal. You can imagine:

The people:  “I know you made a big deal about the jump in job openings last year.  I was worried about that too. Turns out that the BLS JOLTS’s birth/death model wasn’t calibrated with the latest data, and overestimated that jump.  Since the ‘natural’ rate of unemployment is lower than it was in your mind, how about we do some more aggressive monetary policy?”

Kocherlakota:  “I would prefer not to.”

Or how about:  “I know, given GDP estimates by the BEA at the beginning of this year, you thought that monetary policy was right on target.  Turns out that was wrong; the BEA just recently revised the GDP drop downward, meaning we were further off trend than we had imagined.  How about we do some more aggressive monetary policy now?”

Kocherlakota:  “I would prefer not to.”

Or even:  “I know you were really concerned about the headline inflation blowing up earlier this year.  That was bananas.  But it turns out that it was a minor blip that has since gone away.  Indeed, we should be more worried about further declines in expected inflation translating into a rise in real interest rates, rather than runaway inflation.  How about we do some more aggressive monetary policy now?”

Kocherlakota:  “I would prefer not to.”

Can we get some clear answers as to the circumstances that would actually get these dissenters to support more aggressive monetary policy?

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8 Responses to Richard Fischer Chernyshevsky ; Kocherlakota, the Scrivener

  1. David Beckworth says:


    I thought Fisher’s comment about monetary policy allowing congress to postpone hard decisions had the causality backward:

  2. Micky9fingers says:

    You don’t need to go all the way back to the 19 th century. Naomi Klein’s ” The Shock Doctrine” covers the idea of the “worse the better” for neo-economists”

  3. Pingback: V.I. Lenin’s ghost at the Federal Reserve « David Petraitis

  4. Peter K. says:

    Head of nail, meet hammer.

  5. Dan Kervick says:

    It’s really quite perplexing that so many mainstream liberals have made common cause with free market conservatives in rallying to the banner of this new variety of Fed voodoo, and in kneecapping progressives supporters of fiscal activism.

    The reasoning offered in support of NGDP level targeting by its varied proponents is increasingly bizarre and self-contradictory. It looks more like an ideological and knowledge class negotiation than a rational policy discussion.

    I feel like there must be some backstage political maneuvering or marching orders that I am missing.

  6. Pingback: HOLD EVERYTHING: Fed Considering New Mortgage-Buying Stimulus Scheme | My Blog

  7. Pingback: Fed Considering New Mortgage-Buying Stimulus Scheme | Athens Report

  8. nanute says:

    Rumor has it that there is new group forming at the Fed: ? Mark and the Austerians.

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