Top Fed Officials Should Really Take A Refresher Course In U.S. Economic History
U.S. central bank officials should really consider poring over some of their own historical literature from time to time.
One 1945 paper in particular, entitled “Jobs, Production and Living Standards,” offers fairly stunning economic advice for an institution as staid and historically conservative as the U.S. central bank.
The Federal Reserve has evolved considerably as a public, transparent institution since its inception as essentially a plunge-protection plan by bankers, for bankers in 1913.
Top officials including Fed Chair Jerome Powell regularly inform the public about how and why the central bank plans to achieve its dual objectives of stable inflation and maximum employment.
Unfortunately for workers, the Fed has often put more weight on its low inflation mandate at the expense of millions of potential jobs.
In doing so, the Fed has further tilted an already-skewed playing field deeper in favor of corporations at the expense of workers, who then have trouble securing wages and bargaining fairly with their employers.
Central bankers then express shock that wages have been stuck in neutral not only in the latest economic expansion but really since the late 1970s, despite their own role in hampering those gains.
Enter the August 1945 paper by E.A. Goldenweiser and co-authors, clearly penned under the presumption that World War II would go on for the foreseeable future.
The authors’ tone is downright remarkable given today’s politics:
“Underlying this essay, an in fact the entire series of studies which it introduces, is the thought that society should function for the benefit of the individuals who compose it,” Goldenweiser, then an economic adviser to the Fed’s board of governors opened by writing.
“Full employment at adequate pay has been chosen as the central theme because jobs are the main channel through which national welfare reaches the individual. If everyone able and willing to work is employed and in a position to maintain or raise his (sic.) living standard, such global concepts as national product, national income, and total expenditures will take care of themselves.”
In other words, if only policymakers make sure everyone has a job, the world will be just fine. This was no socialist manifesto. These were economic advisers to the central bank of what was emerging as the world’s most powerful nation in the midst of a high-pressure wartime economic drive.
“Government influence over the affairs of the individual has inevitably increased as we have moved into a closer-knit society,” he declares. “The day of laissez-faire is over.” (Clearly, nobody told then Army-officer Ronald Reagan.)
These economists were also thinking about what would come after.
“The problem of maintaining full employment in peacetime will present a most serious and difficult hurdle,” the authors state. They define full employment as going “beyond a mere count of persons who do or not not have jobs.”
Instead, a fully employed economy is “conceived as a condition under which every person who is able and willing to work can find enough employment in the course of a year to earn not less than enough to maintain his (sic.) habitual standard of living.”
Let’s get to work. There’s still clearly a lot of it to do.