I'm not trying to justify Aaron's economically illiterate conspiracy theorizing, but I would like to reiterate some of what I first emailed Aaron a few years ago when he first started talking about this (e.g. http://www.aaronsw.com/weblog/predatorstate ).
It's true to a degree that bankers don't aim for zero unemployment - i.e. implicitly they "let millions and millions of people be unemployed" - because to do so would create inflationary effects. Such an economy would be overheating. In an economy the size of the US, you would expect there to be a few million people unemployed at any given moment, simply because of turnover.
It is however true that the Fed has a rather ridiculously overloaded mandate. It has basically one lever - the interest rate - with which it is supposed to target multiple goals - "maximum employment, stable prices, and moderate long-term interest rates". If you think about this for a moment, you'll realize it's not possible.
In Poland monetary policy is understood as keeping prices stable not as attaining a set of objectives oriented towards the growth and stability of the economy.
I don't know about his country, but this is done also in my country, Switzerland. There isn't much growth, but unemployment is usually lower than 4% I think.
I think they don't try to shorten recessions, but they intervene in case of crashes and bursting bubbles in order to keep the financial markets functioning.
I'm not sure there is much evidence that lowering interest rates help the economy to come out of a recession. I studied economics almost 20 years ago and then the prevailing opinion of economists was that you can't know when a recession will end, so lowering interest rates to spur growth is likely to just cause inflation after the recession ends.
Anyway, if the central bank targets inflation, it also has lower interest rates in a slow economy that doesn't risk overheating.
Comments
I'm not trying to justify Aaron's economically illiterate conspiracy theorizing, but I would like to reiterate some of what I first emailed Aaron a few years ago when he first started talking about this (e.g. http://www.aaronsw.com/weblog/predatorstate ).
It's true to a degree that bankers don't aim for zero unemployment - i.e. implicitly they "let millions and millions of people be unemployed" - because to do so would create inflationary effects. Such an economy would be overheating. In an economy the size of the US, you would expect there to be a few million people unemployed at any given moment, simply because of turnover.
But this is pretty basic stuff. See e.g.:
http://www.investinganswers.com/term/unemployment-rate-809
http://en.wikipedia.org/wiki/NAIRU
It is however true that the Fed has a rather ridiculously overloaded mandate. It has basically one lever - the interest rate - with which it is supposed to target multiple goals - "maximum employment, stable prices, and moderate long-term interest rates". If you think about this for a moment, you'll realize it's not possible.
In my country equivalent of FED has only one goal: Keep inflation moderate and manageable. It works out pretty well.
And "my country" would be _______ ?
Poland
I was a bit imprecise. Not equivalent of whole FED but equivalent of part of FED that makes decisions about monetary policy.
http://en.wikipedia.org/wiki/Monetary_Policy_Council
In Poland monetary policy is understood as keeping prices stable not as attaining a set of objectives oriented towards the growth and stability of the economy.
So in your country their could be a massive depression with everybody out of work and your FED won't lower interest rates?
I don't know about his country, but this is done also in my country, Switzerland. There isn't much growth, but unemployment is usually lower than 4% I think.
I think they don't try to shorten recessions, but they intervene in case of crashes and bursting bubbles in order to keep the financial markets functioning.
I'm not sure there is much evidence that lowering interest rates help the economy to come out of a recession. I studied economics almost 20 years ago and then the prevailing opinion of economists was that you can't know when a recession will end, so lowering interest rates to spur growth is likely to just cause inflation after the recession ends.
Anyway, if the central bank targets inflation, it also has lower interest rates in a slow economy that doesn't risk overheating.
If the inflation was kept under control (not too low, not too high) then they would not do anything other then usual.
They of course monitor unemployment but only because unemployment rate (which is currently 12.7%) can influence future behavior of inflation rate.