Analysts at PIMCO say that if the Fed is to achieve its goal of lowering inflation to 2%, fewer people will be needed to work. Less incentives to offer raises and bonuses and less spending the ‘resilient’ American consumer can help cool inflationary pressures. But there’s an elephant in the room: why do we let a handful of unelected central planners decide what’s best for markets (and people) to begin with?
Part of the problem is that “markets” are people, and part of the darkness of central banking is that in order to do their work at all, those people have to be reduced to numbers on a screen. Data in a spreadsheet. Lines in a graph. Central bankers must also think that they are so omniscient that they can adjust the levers of the economy to responsibly achieve goals within a system of virtually infinite complexity. The human cost of this hubris about monetary policy is almost unspeakable in scale.
In response to the Fed’s report on inflation rates earlier this month and what it means for unemployment rates: PIMCOs Tiffany Wilding said:
“(The report) should raise real questions about the extent to which inflation will return to target without any further easing in the labor market.”
But some analysts disagree. As Michael Saunders from Oxford said Financial times on reducing inflation in the US and the Eurozone, he thinks that inflation targets can be met through the miracles of ‘flawless disinflation’, where inflation is reduced and kept at the 2% level without a major increase in the unemployment rate :
“Flawless disinflation, where inflation sustainably returns to target without a significant increase in unemployment, has become the base case.”
The term ‘flawless disinflation’ is a powerful example of the supreme arrogance of central banks, cloaking them in the language of Christian divinity. But what is actually the ‘right’ employment level? “Maximum employment” is part of the Fed’s mandate, which makes it sound like central bankers want everyone to have a job. However, the reality of the doublespeak is very different.
The meaning of the ‘maximum employment mandate’ is that the Fed wants to achieve the maximum correct number of people who have a job. Determining exactly what the “right” number is in practical terms is a guessing game of central bank wizardry, but it basically comes down to whatever number the Fed thinks is needed to achieve their 2% inflation target.
However, the precise nuances that drive the dynamics between inflation and unemployment are something that even the Fed’s economists can’t definitively agree on. The details of the trade-off between inflation and unemployment have long been a debate in economics, with different parties taking different positions based on their endless self-referential analyzes and Keynesian math, as seen earlier this month in this report from analysts at the Federal Reserve Bank of New York. Discussing the inflation-unemployment debate, which has reignited among economists and central bankers during the Covid-19 pandemic, they say:
“One camp argued that the rise in inflation was mainly caused by transitory factors, such as global supply chain disruptions and shifts in demand, with little negative growth impact from disinflation on the US economy. A more pessimistic view embraced by others envisioned a more expensive disinflation process leading to a recession.”
This chart from the St. Louis Fed shows the drastic spike in unemployment that has fueled the debate, along with countless other disruptions caused by the global response to the virus (providing endless academic fodder for economic researchers):
The Covid-19 unemployment peak
Whichever camp is more accurate, when it comes to pushing for lower employment rates to curb the inflation that the Fed’s policies have created, central banks are punishing people for the results of their own policies. And even at the 2% inflation target, the central bank continually reduces your future purchasing power to provide pseudo-infinite financing for an overburdened empire, or as Ron Paul aptly calls it, the Welfare Warfare State.
Regardless of whether the inflation rate is 2%, 4% or much higher, the common denominator is this: central banks are stealing your money.
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