Janet Yellen is the Chairman of the Federal Reserve Board. She is also an economic idiot. By that I mean she is fully committed to the economically suicidal principles of Keynesianism. If you do not know what Keynesianism is I believe it is fair to sum it up as the school of economic thought which presupposes that government can control the economy. All government has to do is pull the right strings at the right times and our economy will constantly grow with a state of perpetual full employment. The fact that Keynesians have never actually been successful does not deter them from continually trying. Janet delivered a speech last week that put her economic ignorance and belief in the all-powerful government on full display. You can find the full story here. Here is a quote from an article on CNBC.com about the speech:
"In a speech on Friday, Federal Reserve chair Janet Yellen stayed her dovish course, maintaining that an increase in the federal
funds rate 'may well be warranted later this year.' She also emphasized
the Fed's data dependence, as well as her general tone of 'cautious
optimism' in the economy. Yet it was in her discussion of what she termed 'special risks and other considerations' where things got interesting.
The first of her three special concerns around hiking rates run along
the following lines: 'Some recent studies have raised the prospect that
the economies of the United States and other countries will grow more
slowly in the future as a result of both demographic factors and a
slower pace of productivity gains from technological advances,' the Fed
chief stated. 'At an extreme, such developments could even amount
to a type of secular stagnation, in which monetary policy would need
to keep real interest rates persistently quite low relative to
historical norms to promote full employment and price stability, absent a
highly expansive fiscal policy,' she added." Let's consider her comments for a moment.
The big fear right now is that the Fed is going to raise interest rates and derail the economy, plunging us all into another recession and driving the stock market to record low levels. Rising interest rates will not hurt stocks. Go here for the argument that I made previously in this blog. As the idiot that she is, Janet believes that raising interest rates will cause the stock market to plunge to new lows so she is very careful to speak in hushed, reverent tones when she talks about future rate hikes. As most everyone knows the short term interest rate has been set to zero for many years now. Keeping interest rates artificially low for so long has done more to hinder economic growth than allowing them to rise to a more natural level would ever do. But Keynesians like Janet do not see that rather simple and obvious fact. They live in a world in which government action determines all.
Of most interest to me today is what the above quote referred to as "special risks and other considerations." In particular Janet believes that the rate of economic growth in the Socialist Democracy of Amerika will decline in the near future because of "demographic factors and a slower pace of productivity gains from technological advances." I have just one question for our omniscient Fed Chairman....how could she possibly know these things? In fact, I have a couple of other questions. What are the "demographic factors" which are going to conspire to decrease the rate of growth in the SDA? I am driven to the belief that she is referring to the fact that the population of workers in this socialist country is aging, with more retiring and less entering the workforce every day. Here is a graph of the workforce in the SDA since WWII. The left side of the graph shows the percentage of people working as a percent of the total SDA population.
If GDP growth is determined by the total number of people working in the marketplace we should have seen much lower rates of growth during the 1950s and 1960s when the percentage of citizens working was considerably lower than today. What do we find? The average rate of GDP increase during those two decades was +6.25%. The current rate of GDP growth is 2.4%. If the economy was able to grow when a smaller percentage of a smaller group of people was able to generate healthy gains in excess of 6%/year, why should a somewhat lower percentage, when compared to the 1990s, of a larger population base doom us to a future of anemic growth? Answer: it shouldn't and it won't.
The omniscient Janet also informs us that she has seen the future and it is bleak. According to her the rate of "technological advances," whatever they are, is going to decrease, thus bringing about a lower rate of worker productivity and a lower rate of economic growth. How can Janet possibly know what new technological advances are just around the corner and how can she confidently predict that the golden age of technology is behind us? I have no idea and neither does she. She is just blowing hot air in order to make herself sound intelligent and, above all, to make herself sound like the key to all economic growth in the future. Technology emerges from the free market spontaneously and it will continue to do so in the future. All attempts to predict future technological advances and the impact they will have upon worker productivity are foolish and vain. All we do know is that profit-seeking businessmen are constantly looking for better and more efficient ways to create capital. Although the process of moving forward is filled with many failures, they always succeed. I see no reason why that should change and neither should you.
Janet's prediction that the SDA could slip into a "secular stagnation" is fascinating. In essence what she is admitting is that all of her monetary policy maneuvers, and those of her predecessor Gentle Ben, have been worthless. Despite the fact that the Fed is "data driven" (which is more of an excuse for failure than a description of the actual process), Janet has been unable to create a more rapid rate of economic growth. So what does she do? She predicts that the future will be even more bleak and that we should be thankful to her for the rate of growth that we do have. It is only because of her efforts that we have any economic growth at all. What utter nonsense it all is.
Janet concludes her statement by saying that if her anticipated "secular stagnation" occurs she will leave interest rates at zero percent forever. Zero interest rates is the only tool in her bag and she is going to use it with a vengeance. It does not matter that it does real harm to the economy. It does not matter that one of the primary reasons for the present lower rate of economic growth is her policy of zero interest rates. All that matters is that she is in charge and she is going to do stuff to the economy for which we should all be thankful.
Note that Janet concludes her statement with an "out." She says that she will keep rates low forever unless the federal government goes on a spending binge to beat all spending binges. We are talking an FDR type of spending binge here. That is what she means by "absent a expansive fiscal policy." The twin pillars of the Keynesian religion are artificially low interest rates and high levels of government spending. Janet cannot control the government spending part so she tinkers with her interest rates while trying to convince all of us that we should pay no attention to the crazy person behind the curtain.