A Problem with the Fed's Dual Mandate
It’s almost as if Federal Reserve governor Lael Brainard read the February 11 Mises article "The Fed and 'Maximum Employment'" and then rebutted with a class lecture at Harvard two weeks later. Whereas the Mises article starts by cautioning that maximum employment is used to justify the state’s interventions in our lives, the governor starts her class saying:
[What] I hope you remember from today is that economics provides powerful tools to enable you to analyze and affect the issues that matter most to you.
The problem begins here because what matters most to the economic planner is the goal of staying both in control and relevant, thereby ensuring perpetual employment income for oneself. As the Upton Sinclair quote goes:
It is difficult to get a man to understand something, when his salary depends on his not understanding it.
Brainard follows with the history of maximum employment and its roots in the Great Depression, leading to the Employment Act of 1946, which allowed government to pursue:
conditions under which there will be afforded useful employment for those able, willing, and seeking work, and to promote maximum employment, production, and purchasing power.
A lofty goal, that the government should find or create jobs for all who want to work. The mechanism as to how this was to be achieved remains unstated, but it was the measurement which was problematic. By 1950 there were discussions of “full employment,” and what this actually meant. Luckily there was an academic at the time, Dr. Palmer, who was able to shed more light on the situation.
Palmer was a professor at Wharton, a fellow of the American Statistical Association, a worldwide expert on manpower and labor mobility, and a consultant with the Office of Statistical Standards.
The Palmer’s contribution argues:
Inherent in the phenomena being measured are so many degrees and kinds of labor force activity that no single definition or classification can adequately summate them.
Thus, when it came to measuring full employment, or maximum employment, no single data point could suffice, instead, it required a wide range of data to “summate” in a manner only the planner can determine is best.
By 1977, the Federal Reserve Act was amended, giving the Fed:
the goals of maximum employment, stable prices, and moderate long-term interest rates, commonly referred to as the dual mandate.
Another present-day familiarity we see emerging from the 1970s was the notion of “full employment” being useful to minorities, as explained by one congressman:
without genuine full employment it would be impossible to eliminate racial discrimination in the provision of job opportunities.
The importance of full employment, we are told, is as pressing today as it was in 1930, 1946, and 1977, yet has lacked a proper definition for nearly one hundred years.
Ultimately, Brainard settles on the narrative of there being no single indicator of full employment and consulting a “variety of indicators that together provide a holistic picture of where we are relative to full employment.”
Ten different charts and a variety of labor market indicators are utilized to explain how they arrive at a conclusion, though each data point is rife with its own set of problems. For example, the “Labor Force Participation Rate” (LFPR) equation is defined as: (Labor Force / Population). Seems reasonable until we’re told the labor force includes people who are “actively seeking work” and population means “the working-age population.” As for what the LFPR should be or how all of the data is utilized in a way discernible to the planner, that is anyone’s guess.
Even if we don’t agree with the data metrics, it’s not the data which is the problem. The problem occurs when the data is used to justify perpetual expansion of the Fed’s balance sheet and artificially low interest rates. It’s not a question of using “better data,” it’s a question of using data to calculate the incalculable as an excuse for government intervention.
At institutions of higher learning across the country, the economics of liberty and freedom are not offered as a part of the curriculum. And why would it be? The entire apparatus of mainstream economics serves the central planner first and foremost. In a free market, they’d be at the bottom rung of society, but under socialism they continue to stay on top.