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My Turn: Lessons learned from an economic education

Federal Reserve Chair Janet Yellen smiles as testifies on Capitol Hill in Washington, Wednesday, July 16, 2014, before the House Financial Services Committee hearing entitled: "Monetary Policy and the State of the Economy.  (AP Photo/Pablo Martinez Monsivais)

Federal Reserve Chair Janet Yellen smiles as testifies on Capitol Hill in Washington, Wednesday, July 16, 2014, before the House Financial Services Committee hearing entitled: "Monetary Policy and the State of the Economy. (AP Photo/Pablo Martinez Monsivais)

I graduated in 1973 with a bachelor’s degree in economics from a highly regarded liberal arts college. In reflecting upon this, I am astounded by the manner in which economic principles were taught. For example, students were instructed on the various aspects of macroeconomics vs. microeconomics, supply and demand, and monetary policy vs. fiscal policy.

This piece addresses only the monetary policy and fiscal policy of economic thought as it was presented to students. For ease, look at monetary policy as the setting of interest rates and the overall money supply.

The Great Recession was brought on by many things: technology advances and the decimal-based trading it brought through the advent of computers, the end of private partnership ownership of investment houses by “going public” through IPOs, ill-advised deregulation such as repealing the Glass-Steagall Act and leaving derivative products free from regulation, and the establishment of Wall Street’s culture rewarding short-term performance without regard to the long-term aspect of fractional trading (leverage).

This was exacerbated by such idiotic things as rating agencies being paid by the companies offering the precise products to be rated, seats in Congress being financed by lobbyists in order for one to be elected in the first place and politicians being beholden to special interests for re-election. (Thanks, Supreme Court, for your series of decisions which serve only to promote this.)

But back to monetary policy vs. fiscal policy.

In college, it was never made clear to me that monetary policy is not driven by a democratically elected government but rather by the privately owned Federal Reserve. A so-called Central Bank.

It was never made clear to me that the Fed was established in 1913 by financiers and banks in order to overcome the distrust Americans had developed toward the banking system due to the recession of the very early 1900s, that these individuals created the Fed to maintain their ability to keep their hands on the money.

And it did take some number of years for the legislation to overcome the fears of many detractors before it became law. (Just consider the sleight of hand in terming it the Federal Reserve, as though it is a true government agency.)

It must be understood by all Americans that this privately owned Federal Reserve, through its chairman (now Janet Yellen, following Alan Greenspan and Ben Bernanke), is solely responsible for our country’s monetary policy. The Fed does not answer to Congress or the president outside of the fact that the chairman is nominated by the president for congressional approval. Americans must realize that the Fed oversees one-half of our nation’s economic tools (the other half being fiscal policy).

Myself and many others believe that the “recovery” has almost been entirely left to monetary policy. Through the “zero interest rate” environment and various forms of what has been termed “quantitative easing.” Both of these concepts are unnatural and deviously destructive. Both have caused “free markets” to become distorted and dysfunctional.

Interest rates should be determined by “the free market” and not by central planning. When the “free market” is suppressed in this fashion, it cannot operate as intended in a democratic society, as has been indisputably the case. I’m sure everyone has read all the stories about the destruction of the middle class, the widening of the gap between the rich and poor to historically high levels, the impoverishment of so many, the loss of jobs, the disappearance of wage increases for the vanishing middle class and low-income population, the loss of homes to foreclosure, the huge increase in indebtedness for college education, the “tapping out” of financial resources for so many, etc.

This has been the result of America’s refusal to address economic recovery through fiscal policy and instead abandoning its responsibility in favor of monetary policy as enacted by the Fed. Not long ago, the profoundly disappointing President Obama (whom I voted for twice) announced a $600 million proposal addressing jobs creation. But compare this to the one-time(!) audit of the Fed revealing $16 trillion in unrevealed financial assistance – or bailouts – to the worldwide financial system. Or the $4.6 trillion added to the Federal Reserve’s balance sheet through quantitative easing (specifically the 50 percent or so resulting from the Fed’s purchase of derivative mortgage products at inflated prices to keep monies flowing the banks’ way on top of the “almost free money” already available to them).

Providing operating funds to the very financial industry which almost brought our whole economy down is not a means to dig out from our economic malaise. Quite the opposite. What we have needed is the missing, responsible type of fiscal policy which should have been implemented by our elected president and Congress.

Enough of our president’s blaming the Tea Party and recalcitrant Republicans for the failure to enact fiscal legislation. This is his second term as he continually fails to realize that 75 percent of the population would back aggressive fiscal economic action with no regard whatsoever as to how the 1 percent or untrustworthy bankers fare. As they would back the Department of Justice and regulators pursuing those behind the still-smoldering banking crisis.

Enough of Congress (with some notable exceptions) envisioning their jobs as serving the special interests who finance their campaigns. Their employers should be seen as their constituents – those about whom these politicians repeatedly reveal an utter cluelessness and complete inability to relate. No wonder the term “Demopublicans” is gaining in popularity. Our country’s “record” of fiscal policy since the Great Recession and anemic recovery just reinforces the notion of there being no true difference between the parties.

Only empty sound bites.

(Birney K. Brown, a registered Democrat, lives in Contoocook.)

Legacy Comments6

Rabbit, Itsa, and BPR...it is VERY obvious that politics and economic ignorance has blinded your perception of the recent recession and recovery therefrom. Maybe you should read a book titled: 'Reckless Endangerment' by Morgenson and Rosner. Oh, wait, I forgot, reading is what Dems and Progressives do, not for righties.

Mr. Brown presents the typical right-wing answer to the US financial situation. Blame the FED for the recent Recession. Ignore that Wall Street caused it (check Politico's assessment). Blame the President for a very slow recovery and ignore that Senator McConnell stated, on the eve of Obama's inauguration in 2009:"... the National Republican Party will do everything possible to assure he is a one term President."

Walter, the GOP is not responsible for the choices President Obama has made in regards to spending, foreign policy, or the fact that he has made business the enemy. The also are not responsible for his taxpayer investments in Green Companies that have failed. Nor are they responsible for the fact that he has no clue what is going on in pretty much every govt dept till he reads it in the paper. None of us expect Dems to understand the economy. If they did, they would know why nobody is investing in America anymore. Instead, the left want America to be a socialist country, and they have to destroy capitalism to attain that goal. It is pretty evident that the left believe that govt knows best and will provide. At some point though you do run out of other people's money.

Incorrect Carly.

I agree with Mr. Brown for the most part. Good column. Americans have suffered enough over the past 6 years. It is time to enact fiscal policies that will enhance our economy not hamstring it.

That was a well written economic treatise that the LIDV crowd will never understand. All they will shout about about are their phoney baloney "income inequality" and the "war on women" issues.

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