The Second Mandate

August 31, 2011

The Federal Reserve has a dual mandate, to prevent inflation from growing out of control and to reduce unemployment. The Fed is doing a fair job with the first mandate, at least in part by defining the things that are increasing in price out of the definition of the inflation that it’s managing.

Whatever became of the second mandate?

7 comments… add one
  • Ben Landon Link

    It’s not clear the Fed has done a good job with the first mandate. The effects of QE2 and QE3 (if it happens) is likely to be inflation years down the road. The inflation of the late 1970s was largely caused by policies put into place in the mid to late 1960s and continued through the early 1970s. Ten years from now we can start to get a handle on the effects, if any, of QE2.

  • Drew Link

    You state this as if it came from God himself. It was only a Congressional mandate (memory fades – late 70’s??) that was absurd that set this up.

    Previously, price stability was the goal. Some things are best left untouched. Empirically, we see the folly of the dual mandate.

  • Dave Schuler Link

    I think it’s reasonable to question the dual mandate. I think it’s reasonable to question the existence of the Fed altogether.

    I don’t think it’s reasonable to ignore the sections of the empowering legislation you don’t care for.

  • Drew Link

    “I don’t think it’s reasonable to ignore the sections of the empowering legislation you don’t care for.”

    Say what? That’s illogical.

    Ben L’s post hadn’t hit when I hit my post button, but we agree on the same theme. The “sections of the empowering legislation you don’t care for” are the essence of the problem. I, at least, am not in denial that they exist. I am simply pointing out that they are the problem. In fact, “Mission Creep” is the very essence of the problem with government intervention. Only morons and zombies don’t get it.

    “We must make sure food is safe………….HEY, you have to shut down that lemonade stand, you evil bastard 6 year old bloodthirsty profiteers!!!”

    This is where leftist theory ends up. Control, weird control.

  • sam Link

    “Whatever became of the second mandate?”

    Why does the Fed skew more hawkish [on fighting inflation] than the economics profession as a whole? Part of the answer lies in the way the 12 voting members of the policy-setting committee are chosen. They are a mix of presidential nominees subject to Senate approval, with 14-year terms, and regional Fed presidents, who are chosen by outside boards that are made up partly of private-sector finance executives.

    David Levey, a former managing director at Moody’s and another critic of Fed inaction, points out that banks often have more to lose from inflation than from unemployment [my emphasis]. Inflation reduces the future value of the money that their debtors — homeowners, car buyers, small businesses and the like — will repay them.

    “The Fed regional banks represent, in essence, the banking community, which tends to be very conservative and hawkish,” Mr. Levey says. “Creditors don’t like inflation — it’s good for debtors.” Indeed, the three recent dissents all came from regional bank presidents: Richard W. Fisher of Dallas, Narayana R. Kocherlakota of Minneapolis and Charles I. Plosser of Philadelphia.

    David Leonhardt, Dissecting the Mind of the Fed

  • steve Link

    ““We must make sure food is safe………….HEY, you have to shut down that lemonade stand, you evil bastard 6 year old bloodthirsty profiteers!!!”

    This was the result of some federal, leftist ideology or some local busybody? The lemonade stands in my neighborhood do not get shut down.

    Steve

  • Andy Link

    Steve,

    Here ya go.

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