Five Things You Need to Know: Fed's Plosser Takes a Few Potshots at the Fed
The Philadelphia Fed chief explains why he was adamantly opposed to the most recent FOMC policy move.
This morning Philadelphia Federal Reserve President Charles Plosser appeared on Bloomberg radio with Tom Keene and Ken Prewitt to discuss for the first time his opposition to the FOMC's August 9 decision to throw another round of stimulus on the slowly smoldering U.S. economy.
You may recall that the biggest surprise coming out of the FOMC's August 9 meeting wasn't the added stimulus but the fact that three of the 10 voting members (the other two were Richard Fisher and Narayana Kocherlakota) opposed the inclusion of language specifying that the Fed's benchmark interest rate would be held at near zero until at least mid-2013. You have to go all the way back to Nirvana and "Smells Like Teen Spirit" to find the last time three policy makers on the Fed dissented. Really? Really grandpa? Okay, it was 1992.
Anyway, the unusual dissension took on an added measure of stress this morning as Plosser further outlined his reasons for opposing the Fed's move. While it's somewhat unusual though hardly unheard of for a policy maker on the Fed to dissent, it's very unusual to take to the airwaves to publicly take shots at monetary policy decision making.
Below are some nuggets from Plosser's radio interview:
- "It was inappropriate policy at an inappropriate time," Plosser said.
- Plosser also objected to the Fed's downbeat description of the economy in the FOMC statement, calling it "excessively negative."
- That's not to say Plosser doesn't think the economy isn't weak. He added that he sees a “huge number of uncertainties” on economy.
- Still, Plosser said he believes the FOMC will be forced to tighten before mid-2013, in sharp contrast to the recent statement.
- He doesn't agree that the Fed needs a "bubble mandate" and doesnt' believe the Fed needs to react to every move in the equities markets.
- Finally, Plosser said he "yearns" for a return to "boring monetary policy." Heh. He should try walking around in the average citizens' shoes!
2. Richard Florida on the "Inchoate Rage Beneath Our Global Cities"
Richard Florida, author of "The Rise of the Creative Class," a fascinating look at the growing role of creativity in the economy, penned a piece for the Financial Times on Tuesday -- "The Inchoate Rage Beneath Our Global Cities" -- that is well worth your time to read.
First, what you already know: if you are on the right, you pretty much blame the recent global riots on "hoolaginism" and a lack of will by authorities to authorize proper police force to stop it. If you are on the left you blame a structurally weak economy and the imposition of austerity. Florida says the causes run much deeper and are linked to fundamental structural changes in the economy.
In short there is a real danger that such riots are a feature, not a bug, of cities in the global era. Instead of a shining city on the hill, our urban centres have become divided. Left to its own devices the unbridled operation of the free market will make these divides worse. Just upping the police presence is a recipe for greater disaster. So if our great cities are to prosper, they now need a new social compact.
That entails more than the old statist recipe of public housing, public medicine, dead-end make-work jobs and public welfare, which helped to create a more or less permanent underclass in the first place. Such an approach must recognise every resident as a source of creative energy.
While Florida and I may differ in our descriptors of the underlying causes, what is interesting to me is that his causality still fits neatly within the Socionomics framework for social mood that drives social actions. This is why merely laying the blame for increasing riots in our major cities on "hoolaginsim" or "economic weakness and austerity" are both so unsatisfying; neither properly captures the causality we can feel and struggle to identify.
Yes, the negative trend in social mood had made riots a feature, not a bug, of our global cities. Yes, we must reach a new social compact. Unfortunately, the new social compact won't be feasible until our present social mood trend has bottomed and we're again open to optimism, compromise, and integration. This will take time. After all, A Tale of Two Standards of Living and the increasing asymmetric economy are themes we first identified in 2006.
From Five Themes You Need to Know for 2007:
"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity," wrote Charles Dickens in "A Tale of Two Cities." Man, is it just me or does that sentence resonate loudly today? #Well, if it's not just me then that's too bad. The plot of Dickens's novel centers around the years leading up to the French Revolution. The material (as opposed to socionomic) origins of the French Revolution were rooted in fiscal crisis... as are nearly all revolutions. High unemployment, low wages and sharp divisions between classes, from the Clergy (First Estate) to the Nobility (Second Estate) and the middle class and peasants (Third Estate) were all factors in the social unrest that exploded on Bastille Day, considered the beginning of the French Revolution.
Are we on the verge of our own "French Revolution"? Not hardly, and that's beside the point. Rather, the theme we are focused on here is that we are operating under economic conditions that are in a relative sense quite similar to those leading up to the French Revolution. Keep in mind that what is important here is that the economic disparity between haves and have nots is growing in a relative sense. Just about everyone's standard of living now is better than it was in 1789. But economic disparity is not about absolute conditions. It is about relative conditions.
As we enter 2007, it is worth considering the economic results of popular movements toward a reduction in economic disparity. Whether one believes such movements are worthwhile or justified is also beside the point. What is important is that such movements can produce important and dramatic economic changes, and it's always better to be ahead of economic changes than behind them.
It's taken four years for those themes to begin to fully manifest.
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