Metrics And The Mandates Of The Federal Reserve
Over the last twenty years businesses have increasingly relied on metrics in order to evaluate performance. Metrics are usually objective measurements which people perceive to be critical to their business success.
Here is what tends to happen when companies use metrics to evaluate their performance: people tend to excel at the items they are being measured on and slack off or ignore the things they are not being measured on. I have been part of those conversations when companies say “Why did we fail, our metrics were excellent…” and of course the reason is human nature. If people are being measured on a certain thing then that is where the time and effort goes, things they are not being measured on not so much even though those other things are also critically important to business success.
Let us look at that same dynamic in regard to the Federal Reserve. Humphrey-Hawkins requires the Federal Reserve to be measured on two criteria: inflation and unemployment.
Right now we have inflation at a sub-2% rate and less than 5% unemployment. Success right? The metrics are outstanding, right?
Now lets look at the success of the entire enterprise, i.e. the United States.
· Real year over year wages have declined for nine straight years
· We have lost about 9 million full time private sector jobs the last nine years
· Labor participation rate is at its lowest since 1975
· Home ownership rate is at the lowest rate ever
· The last nine years the average middle class family has lost 29% of their net wealth
· The last nine years the average poor family has lost 45% of their net wealth
· The last nine years the middle class and poor have lost $15trillion in net wealth while about $15trillion in net wealth has been added to the top 7%
· Billionaires the last nine years have, on average, doubled their net wealth
· The bottom 93% have lost 9% of their wages the last nine years
· The bottom 90% have lost 37% of their net wealth the last nine years
In order to accomplish this miserable result we have increased debt at a rate three and a half times that of actual economic growth., debt which either has to be paid back or defaulted on.
Is there any serious argument against rethinking the Federal Reserve and their mandates? I would hope not, yet the politicians we repeatedly re-elect seem just fine with the mandates as they are.