Here’s another very important piece from Chicago Federal Reserve President Charles Evans, who alone among Fed insiders is out there beating the drums for additional monetary stimulus.
There’s nothing brand new here in terms of ideas, but the point he’s trying to make is very simple. The Federal Reserve system has an obligation to not sit idly by and let the country endure years of mass unemployment. Evans breaks new ground in accurately analogizing the current crisis of macroeconomic management to the policy failures of the 1930s and 1970s. One of my key themes in my Democracy article on the Federal Reserve is that we’ve lost sight of this basic idea of public accountability. In 1929-33, we had a massive failure of monetary policy, and then we had a new policy regime that took us off the gold standard. In the 1970s, we had a massive failure of monetary policy, and then we had a new policy regime focused on “independence” and inflation-fighting. Now we’re watching another massive failure, and Ben Bernanke got re-nominated for a second term and Time made him person of the year.
But I think anyone sitting in the offices of the Federal Reserve system needs to take note of the rising chorus of dissatisfaction around the country with the state of things. They need to take note and they need to make a choice. One option is to pay attention to the fact that many of the members of the chorus are hard money cranks and get paralyzed. Another option is to note that the chorus exists because the Fed is failing, and that people would stop complaining if they started succeeding. That means listening not to cranks, but to the leading experts in the field who almost universally agree that the central bank can and must increase real output by increasing nominal expectations.