The Federal Reserve Is An Incompetent Servant Of Two Masters

A Servant Of Two Masters

Here is the interpretation as it applies to this blog post:

1.       A servant of two masters will have a hard time to serve both masters well.

2.       Under some circumstances it is conceivable that the servant can play the two masters and pursue his own interests. This applies in particular in this case since the two masters are only economic concepts.

A Desperate Ben Bernanke

Economics professor Ben Bernanke this week (on 12/11/2012) took an unfortunate ambivalence of US monetary policy to a new low when he linked the continuation of recklessly low interest rates to an unemployment rate target.

Is Bernanke obsessed with proving that Milton Friedman got it wrong?

A Bit Of Background

1978 the US Congress passed the Full Employment and Balanced Growth Act which among many other things requires the Federal Reserve to achieve simultaneously full employment growth and price stability. By the way, this big government law should be repealed the sooner the better.

Economists have for a long time debated whether a central bank has the means to achieve two disparate economic goals at the same time with limited instruments at its disposal. For decades, the consensus among economists (if there ever is such a thing among economists) is that a central bank is better at maintaining domestic and external monetary stability than stimulating economic growth. Monetary policy should be rule bound and predictable. This fact is well known among economists for decades.