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Article Artículo

The Washington Post Thinks It Is a New Idea to Tell People to Worry About Mobility and Not Inequality

Just when you thought economic commentary in the Washington Post couldn't get any more insipid, Roger Lowenstein proves otherwise. In a business section "perspective" he tells readers:

"But what if inequality is the wrong metric. Herewith a modest proposition: economic inequality is not the best yardstick. What we should be paying attention to is social mobility."

Wow, what a novel new idea, as though right-wingers have not been pushing this line since the dawn of time: "don't worry that your standard of living is awful, the important thing is that your kids will be able to get rich." (It doesn't help his story that his poster child for the rich being good is Lloyd Blankfein, who made his fortune shuffling financial assets at Goldman Sachs and benefitted from a massive government bailout.)

But let's be generous and try to take Lowenstein's story seriously. He goes on:

"Rising inequality, although a fact, is also very hard to find a culprit for. Not that economists haven’t tried."

Really? There are plenty of really good explanations for rising inequality, many of which are in my [free] book Rigged. I suppose in the Age of Trump it is appropriate that the Post has a business columnist determined to flaunt his ignorance.

CEPR / July 23, 2018

Article Artículo

Trump Does the Unthinkable: Criticizes the Fed

Greetings to all from Utah!

Much of the business press has been in an uproar because Donald Trump has criticized the Fed's policy of raising interest rates. Trump complains that interest rate hikes will slow the economy and increase the trade deficit by raising the value of the dollar.

The business press is outraged not necessarily because they disagree with what Trump says (although many surely do) but they argue it violates some fundamental principle of government for the president to talk about the Fed. The outraged reporter gang might want to study up some on the meaning of democracy.

First of all, one will be hard-pressed to find any written law or constitutional principle that suggests that it is inappropriate for the president or any politician to talk about Fed policy. Robert Rubin, President Clinton's Treasury Secretary was and is fond of saying that presidents and other political figures should not talk about the Fed.

In this respect, it is worth noting that Robert Rubin was co-chair of Goldman Sachs before joining the Clinton administration and then went Citigroup after leaving his post as Treasury Secretary. Rubin pocketed more than $120 million for his years at Citigroup. Citigroup was at the center of the housing bubble and would have gone bankrupt without massive government aid in 2008–2010.

This is worth mentioning in the context of politicians talking about the Fed because as it stands now, the Fed tends to be overly responsive to the concerns of the financial industry. Its structure gives the industry a direct voice in the Fed's conduct of policy. It is understandable that flacks for the industry would not like to see its cozy relationship with the Fed threatened by input from the larger society, but it is difficult to see why anyone who believes in democracy would share this view.

There is an issue as to whether we want to see the president or members of Congress directly setting interest rates. My answer would be no in the same way that we would not want the president or members of Congress to decide which drugs get approved for public use. It is appropriate that this authority rests with experts at the Food and Drug Administration (FDA).

Nonetheless, it is the responsibility of the Congress and the president to monitor the FDA. If it went five years without approving any new drugs or began approving drugs that led to a surge in illnesses and death, it would absolutely be the responsibility of Congress and president to determine how the FDA was exercising its responsibilities.

In the same vein, the Fed is charged with maintaining full employment and price stability. If it fails badly in meeting these targets, then it certainly is reasonable for political figures to be raising questions about the conduct of its policy. The Fed's structure guarantees it a high degree of independence from immediate political pressures, so no one at the Fed has to worry about losing their job because Donald Trump or a powerful member of Congress is unhappy with their actions.

CEPR / July 23, 2018