Courtesy of Mish.
Those looking economically illiterate proposals can have a field day reading Ezra Klein’s “Wonkblog” on the Washington Post.
In Full Employment Gives People Jobs Klein states (citing two others) “The Federal Reserve Bank’s focus on keeping inflation below 2 percent effectively sacrifices the other half of its dual mandate: full employment.“
It’s difficult to know where to start debating such economic lunacy, but let’s briefly discuss the notion of a “dual mandate“.
Dual Mandate Equals Mission Impossible
Here’s the deal.
1. The Fed can control money supply but it will have no control over interest rates (or anything else).
2. The Fed can control short-term interest rates, but then it would have no control over money supply (or anything else).
That is the full and complete extent of the Fed’s “control”. Note that neither price stability nor unemployment is in either equation. The reason is the Fed controls neither.
That is a mathematical certainty, yet people have preposterous beliefs that the somehow the Fed can not only control inflation but also unemployment.
If the Fed, the Bank of Japan, the Reserve Bank of Australia, the ECB, or the Bank of England, or the central bank of China could control the unemployment rate, rest assured they would have done so long ago.
The economic illiterates will point out the unique nature of the Fed’s dual mandate, but I will counter with the mathematical stupidity of such an idea.
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