by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Steve Forbes‘ latest contribution to Forbes magazine includes another critique of the Federal Reserve.
TO SEE WHY the outlook for the global economy gets gloomier, just look at what John C. Williams, president of the Federal Reserve Bank of San Francisco, said at a press conference following a forum at which he spoke in late January. Williams was questioned about our central bank’s avowed goal to achieve 2% inflation as a way to stimulate our sluggish economy. His answer encapsulates the fatuousness of the central bank thinking that has wrought immense destruction on the global economy.
When asked how a 2% rise in the cost of living–which would add an additional $1,000 in expenses annually for the average American family–would boost the economy, Williams, with the insouciance of the obliviously ignorant, responded that the inflation would lead to a 3.5% rise in real wages. In other words, $1,000 in extra expenses would trigger a rise in a family’s income of almost $3,000. If only!
If debasing the value of a currency led to a healthy economy, Argentina, Brazil and Zimbabwe would dominate the world.
–Faulty Phillips curve. Williams and most other Fed pooh-bahs are still in the hypnotic thrall of a quack theorem known as the Phillips curve, which posits that there’s an ironclad relationship between inflation and unemployment. Experience shows that notion to be nonsense. In the 1980s U.S. inflation and unemployment both went sharply down. After World War II Germany and Japan demonstrated that low inflation can go hand in hand with soaring growth.