The closest parallel I can see is inside the USSR or maybe China where obviously foolish policies were destroying wealth on a grand scale. Similarly there, you could make the same argument that the authorities were acting an a large and clever framework and there is a lot of context to understand before it can be critiqued. But that doesn't change the fact that the policies were frequently stupid and destructive, and the framework was - at best - a corrupt misunderstanding of reality that didn't help people get wealthy.
It isn't on me to wade into a system that appears to have gone off the rails and find the internal inconsistencies on its terms. When policies are on the face of it stupid the defenders of that policy have to explain it with reference to evidence. In this case, as far as I can tell, they can't. It is just a transparent wealth grab organised by unelected elites.
What policy at the face of it is stupid? Intentionally suppressing wages? Because that's clearly not what the Federal Reserve is intending if you read their statement with their full context. Since they increased interest rates, inflation adjusted wages went from negative to positive. The basics of monetary policy isn't hard to understand. If the economy contracts, you decrease interest rates. If inflation gets too high, you increase interest rates. This much is entirely uncontroversial.
* Their core aim that prices should be rising exponentially.
* That the best tool to achieve that aim is dumping money into asset markets.
* That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts.
All of those ideas are obviously stupid. Their approach to monetising the US debt for the last 20 years is also highly questionable; the obvious way that ends is painfully.
And it also does them no favours that when the outcomes of their activities become obvious to voters, they try to blame COVID and Russia. Sure COVID and Russia can cause problems, but they aren't responsible for sustained systematic price increases. If it was external shocks, we'd see prices snap back down again as the market adjusts. But the fact is that the US is mainly the victim of its own policies. Their press release is playing politics as opposed to being straightforward.
> That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts.
This is just wrong. As, I pointed out earlier, there was no evidence that lower interest rates were trickling into wages at the time. Inflation adjusted earnings were down and reversed when interest rates got increased.
I agree that excessive quantitative easing is widening the wealth gap, but that problem is that without it, we'd probably have another Great Depression. Like you said, the US is the victim of it's policies and policies are made by the elected politicians. You don't blame the surgeon for the side effects of coronary bypass surgery. You blame the patient who can't stop eating barrels of pork.
> there was no evidence that lower interest rates were trickling into wages at the time
There was, that is what prompted Powell's comment. Unless he's trying to push real wages down, which would be quite the radical position to take.
> Inflation adjusted earnings were down and reversed when interest rates got increased.
I'm not exactly sure in context what you're saying with that. Since it is obvious that inflation-adjusted earnings won't show inflation trickling into wages, I'm assuming this is an implicit suggestion that the Fed raises interest rates when wages drop. That seems like an interesting position though, so maybe you should unpack it a little bit - why should the Fed be responding to real wages dropping by raising interest rates?
> ... but that problem is that without it, we'd probably have another Great Depression...
This is what I mean by just-so stories. People act like there is one variable that led to the great depression and it was interest rates/monetary policy. That is just an indefensible position - the great depression literally only happened once and it is unreasonable to ignore the literally thousands of variables that go into an economic crisis.
This isn't an argument. It is barely even evidence. We can state without any reference to evidence that the worst crisis in US history was also the worst managed one, and a quick skim of the Wiki page will reveal that there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy [0]. People point to one crisis, don't even explain what they thought the problem was and pretend like they've somehow demonstrated that only permanent inflation can ward off the Satan. The really weird part to me is I don't think that is the consensus position among the economists because their whole job is studying that sort of complex situation and they tend to lean very laissez-faire in their outlooks.
The fact that the take-away from the Depression was "we just have to shovel money into asset markets. No other options. We tried everything, the alternatives are the worst!" is suspicious, to put it mildly.
[0] The monetarists have a strong point that reductions in the money supply will cause all the metrics to go down. It is far less obvious that is a crisis. Metrics should go up and down. If anything the crisis is when the monetary supply goes up too quickly, but nobody is forced to recognise economic damage while that is happening. But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity.
> Unless he's trying to push real wages down, which would be quite the radical position to take.
If he's not trying to push real wages down, then what's the problem? People were being hurt more by inflation than they were helped with increasing wages, so it makes perfect sense to prioritize inflation reduction over nominal wage growth. The Fed was happy with keeping low interest rates during the wage growth the occurred during from 2012-2020 because inflation was also low.
> why should the Fed be responding to real wages dropping by raising interest rates?
My point is that they were more interested in reducing inflation than they were about moderating wage growth. That real wages ended up increasing is evidence of this.
> there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy
There is a lot going wrong when an unhealthy person dies from a heart attack. I certainly wouldn't characterize the lack of a coronary bypass surgery as "causal," but that's the only actionable thing a surgeon has the power to do. No matter the cause an a medical emergency, the first goal is to keep blood circulating in your body, so you don't end up with cascading problems like organ failure. The same goes for monetary policy. If the economy continues to spiral downward despite conventional measures, why wouldn't you resort to more aggressive interventions?
> But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity.
So you agree that we've been long overdue for higher interest rates?
> If he's not trying to push real wages down, then what's the problem?
Yeah fair point. I suppose what I'm thinking is that the Fed doesn't have any tools that create real wealth, they only control monetary policy. That can only have one of two effects - adjusting the value of the dollar relative to the real economy and causing reallocation of resources.
The policy levers are consistently set to shuffle wealth from labour capital holders, with a particular focus on bondholders and pumping money into credit markets. They shouldn't have their finger on the scales like that; it isn't fair and there is no reason to think it is efficient or productive. It does reallocate away from wages but I don't expect to see that in short term statistics.
> People were being hurt more by inflation than they were helped with increasing wages
Nothing changed recently. Picking on, say, average hourly earnings [0]; that isn't keeping up with the M2 [1]. It hasn't even doubled in 20 years. People are becoming worse off. Inflation adjusted wages aren't a reasonable way of measuring wellbeing because they measure against consumer price inflation and that builds in an assumption that people don't accumulate assets and prepare for their own retirement.
Their policy has been making people worse off for decades. They spend a lot of time calibrating it so the damage isn't evident day-to-day.
> [heart attack analogy]
I suppose I can't argue that directly because arguing about an analogy doesn't make sense. But I will say that if we start - for the sake of argument - with the assumption that the Fed didn't cause the depression, then the argument falls apart because they didn't prevent it and depression not recurring isn't evidence that their policy is helping. Something else introduced a cause and removed the cause. Probably Congress. So the policy of crisis management in 2024 doesn't make sense.
If we take the antithesis of that and accept that Fed policy was a contributing factor to the depression, we'll note that the time period when they set it up was before the money supply contracted, so the policy mistake was more likely overexpansion of the money supply. I'll accept that inflationary policy might sometimes be appropriate, the idea that deflation = great depression is unsupported. If deflation causes the economy to collapse, that means the pre-deflationary policy was building an economy that was prone to collapse. Which is stupid policy and also what the Fed spends most of its day setting up.
> So you agree that we've been long overdue for higher interest rates?
Yeah. I'm arguing that the central bank inflation policy is bad. Since their policy is implemented using interest rates, it seems reasonable to say that I always think they are setting interest rates too low. Indeed, the idea that a committee 'sets' interest rates is a major bone of contention. Setting a price by committee action is a bad idea in every other other market and there isn't evidence it works well in this one either. Extraordinary claims need extraordinary evidence.
I’d guess massive deficit spending funded in large part by central bank which did not have the cash?
Which then artificially sets interest rates, etc.
Hot take: Jerome Powell knows the current state is very bad and what he needs to do will be bad. He wants to have the guts to do it. Market/politicians will hate him. We’ll see if he can do it.
It isn't on me to wade into a system that appears to have gone off the rails and find the internal inconsistencies on its terms. When policies are on the face of it stupid the defenders of that policy have to explain it with reference to evidence. In this case, as far as I can tell, they can't. It is just a transparent wealth grab organised by unelected elites.