It’s perplexing to observe how intelligent individuals can veer far from sound reasoning. Why do certain professions seem to reward their practitioners for missteps? Central banking and monetary policy serve as prime examples of this phenomenon. Today, we’ll delve into a brief case study highlighting these issues.
Minneapolis Federal Reserve President Neel Kashkari exemplifies strong convictions. He is a classic “true believer,” a term coined by the late Eric Hoffer, who described such individuals as capable of turning a blind eye to reality. Hoffer noted:
“It is the true believer’s ability to ‘shut his eyes and stop his ears’ to facts that do not deserve to be either seen or heard which is the source of his unequalled fortitude and constancy. He cannot be frightened by danger nor disheartened by obstacle nor baffled by contradictions because he denies their existence.”
Kashkari firmly believes that the Federal Reserve, an unelected body, can analyze economic data, transforming it into charts and graphs to determine the optimal price of credit. He presumes that by setting credit at the “right” price, the Fed can somehow enhance the overall economy.
This assumption is fundamentally flawed. The economy consists of billions of individuals engaged in constantly evolving interactions. Conditions shift, and what may constitute an appropriate price of credit at one moment can become completely inappropriate in another. A genuinely free market for credit—where prices are established through voluntary agreements between borrowers and lenders—can adjust spontaneously to meet fluctuating demand.
Well-Considered Conclusions
Even if the Federal Reserve could use economic data to establish the right price for credit, Kashkari makes an even more considerable leap of faith: he fully accepts the government’s economic data as irrefutable truth. These manufactured figures serve as the foundation for shaping credit prices to fit his objectives.
The methodology underpinning the use of economic data to identify alleged deficiencies in aggregate demand or overproduction is fundamentally flawed. Metrics such as unemployment rates, gross domestic product, and inflation figures are often manipulated by individuals with their own biases.
Each headline statistic comes with a multitude of qualifiers and adjustments. Hedonic price adjustments, price deflators, seasonal variations, and even the disappearance of discouraged workers significantly influence the results. So, how useful is data based on such adjustments?
Recently, in an article titled My Take on Inflation, Kashkari expressed unwavering faith in governmental data and the Fed’s ability to appropriately manage the economy. While his explanations are lengthy and convoluted, we’ll summarize his key takeaway:
“If I am correct that the Fed’s own actions are an important factor driving surprisingly low inflation and falling inflation expectations, the implication is that our policy should focus on supporting inflation to ensure that we are on track to return to our 2 percent target. My preference would be not to raise rates again until we actually hit 2 percent core PCE inflation on a 12-month basis, unless we have seen a large drop in the headline unemployment rate signaling that we have used up remaining labor market slack, or a surprise increase in inflation expectations.”
Do you follow this reasoning? If you find it bewildering, consider it a sign that your understanding of sound economic principles remains intact.
Federal Reserve President Kashkari’s Masterful Distractions
These sentiments reflect the mindset of a true believer. There’s little acknowledgment of the potential inaccuracies in the data. Kashkari likely never entertains such doubt.
He approaches his controversial role with the certainty of a seasoned craftsman. Yet unlike the carpenter, who measures twice to ensure accuracy, Kashkari operates without such precautions, believing wholeheartedly in his approach.
Kashkari is undoubtedly committed to significant economic intervention. As the federal bailout chief, he was the visible embodiment of government intervention, radiating optimism while dispensing $700 billion in TARP funds to select corporations, all while claiming to protect capitalism by undermining it.
This questionable background has allowed him to ascend to the position of Federal Reserve President. If he maintains his fervent dedication, he may well reach even higher positions, such as Chairman of the Federal Reserve or Managing Director of the International Monetary Fund. Some, like Jeffrey Gundlach, speculate that Kashkari could become the next Chairman of the Federal Reserve.
Ultimately, Kashkari and his colleagues have expanded public and private debt beyond manageable levels. They have devalued the dollar to a fraction of its former worth, creating bubbles across various markets, including real estate, stocks, and commodities, all while enriching private bankers.
Thus, these true believers perpetuate the facade through pseudointellectual discourse about inflation, unemployment, and other aggregated statistics. Their skills at distraction serve their purpose well, especially as instruments for the big banks; indeed, Kashkari’s distractions are nothing short of masterful.
Sincerely,
MN Gordon
for Economic Prism
Return from Federal Reserve President Kashkari’s Masterful Distractions to Economic Prism
