printThe president has appointed Janet Yellen to chair the Federal Reserve. Here is some information about her monetary mindset, by way of a post written on 03.14.10, when Yellen was made vice chair of the Fed:
In an economy of high unemployment and inflation, Barack Obama has gone and appointed as … chair of the Federal Reserve a woman called Janet Yellen, by whose “economic” model inflation is the result of “too many people working and too much economic prosperity.” Or at least, that’s how Larry Kudlow distills the theory.
That such an economic theory exists attests to the degree to which economics and politics have become intertwined. Certainly “Keynes’s political creed guaranteed a hand-in-glove relationship between the state and its stooge economists. Most of what Keynes advocated entails giving the state enormous confiscatory powers.”
Is “the Phillips-curve model,” Yellen’s preferred theory, an extension of Keynesianism, or is it just some form of free floating statism? I have no idea. But since most economists are servants of the state in-waiting, following the Phillips Curve—which posits “a consistent inverse relationship: when unemployment is high, wages increase slowly; when unemployment is low, wages rise rapidly”—has given rise to “a menu of policy options.” Examples, courtesy of the Concise Encyclopedia of Economics, are:
with an unemployment rate of 6 percent, the government might stimulate the economy to lower unemployment to 5 percent. Figure 1 indicates that the cost, in terms of higher inflation, would be a little more than half a percentage point. But if the government initially faced lower rates of unemployment, the costs would be considerably higher: a reduction in unemployment from 5 to 4 percent would imply more than twice as big an increase in the rate of inflation—about one and a quarter percentage points.
OF COURSE, the unquestioned premise of these phillipic prescriptions is that “stimulus” does indeed lower said unemployment rates. Only in The Oink Sectors.
“Super-confused Keynesianism” is Robert Wenzel’s apt description of Yellen’s theories.