This month, the scholars at Harvard Business School released a new report. This document encapsulates five years of thorough analysis focusing on U.S. competitiveness, drawing insights from global business leaders and the general populace.
The report is titled “Problems Unsolved and a Nation Divided.” However, the connection between these two concepts remains ambiguous. It seems the authors suggest a correlation exists between the nation’s division and its unresolved issues.
Are the problems a result of national division, or is the division caused by unresolved issues? For clarification, we turn to the report’s executive summary…
“Overall, we believe that dysfunction in America’s political system is now the single most critical challenge to U.S. economic progress. Many Americans recognize that the system is broken, but they are unclear about the reasons or potential solutions.”
“Despite growing frustration with politics, there is, as of now, no framework for understanding the causes of today’s poor performance or proposing effective remedies. Identifying such a framework and the requisite reforms to alter our political system’s trajectory has become a vital priority.”
Insightful Observations
From our perspective, Harvard seems to be grasping something essential. Their report appears to be a sincere attempt to objectively evaluate the ongoing stagnation of the U.S. economy. Here are some additional insights:
“U.S. competitiveness has been declining since long before the Great Recession. America’s economic hurdles are structural rather than cyclical. The sluggish recovery reflects this decline as well as the failure to take necessary steps to address escalating shortcomings.”
We can’t dispute this point. The structural competitive advantages enjoyed by U.S. workers after World War II have largely diminished. Sooner or later, the accumulated capital and the status of the dollar as a reserve currency will also deplete. Meanwhile, no quick fixes can reverse this trend, and the report emphasizes this fact.
However, the document notably sidesteps a crucial element undermining the U.S. economy. Within its 70 pages of dense text, it barely mentions the Federal Reserve, referring to it only twice: once in the executive summary and once in Chapter 1.
Interestingly, both references state almost the same thing: that “America’s economic strategy defaulted to trusting that the Federal Reserve could somehow ameliorate our problems through monetary stimulus.” Unfortunately, there is no in-depth analysis or discussion on the economic havoc wreaked by the Fed’s policies.
Why is this the case?
The reality is that it’s often detrimental for academic economists to present findings that challenge the mainstream neoclassical economic doctrines that guide Federal Reserve policies. It would certainly be unacceptable for Harvard Business School to acknowledge that the Fed’s zero-interest-rate policies have significantly impacted the pensions and retirement accounts of three generations of American workers. Similarly, it remains off-limits to highlight how Fed policies have intensified the difficulties faced by American workers.
Consequently, the report settles for recommendations regarding business tax reforms, leadership in Washington, labor organizations, trade, and sustainable federal budgets. While these topics deserve exploration, any ensuing reforms in today’s central bank-controlled fiat money system merely amount to “rearranging the deck chairs while the economic ship takes on water.”
The Oversight of Price Control
Ultimately, the Federal Reserve’s policies of negative interest rates and quantitative easing act as forms of price control. However, they extend beyond mere regulation of wages or consumer goods prices. By setting the price of money, the Fed effectively influences the pricing of all economic goods and services.
The resulting artificially set prices convey misleading signals to business leaders and investors, leading to misallocation of resources. For example, developers may borrow funds to construct opulent homes in the Florida swamp or California desert—or to extract oil from wells that only become viable at $100 per barrel.
In sum, regardless of whether institutions like Harvard Business School acknowledge it, the price control strategies enacted through Fed’s monetary policies represent a disastrous means of managing the economy. As noted by Senator Wallace Bennett over fifty years ago, price controls are akin to using adhesive tape to control diarrhea.
In conclusion, we present a vital excerpt from a statement made by the Fed on Wednesday:
“The Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee assesses that the case for an increase in the federal funds rate has strengthened but has opted, for now, to await further evidence of continued progress toward its objectives.”
Clearly, the Harvard report failed to adequately address the Fed’s role in price fixing.
Sincerely,
MN Gordon
for Economic Prism
Return from Harvard Report Whiffs on Fed Price Fixing Scheme to Economic Prism
