The Ball and Chain Economy

Things must be getting pretty dull when the Fed’s interest rate report tops the headlines, but there it was: front-page hoopla over Chairman Bernanke’s bold announcement of a sweeping new strategy. Interest rates will remain very low indeed, he said, until unemployment goes below 6.5 percent.

Well, Shoot Me Now. While I gather my thoughts on how unbelievably cynical this announcement, and the press coverage of it, is, have a listen to the song I turn to at times like this:

Y’know what I’m saying?

Commentators point out that merely announcing that interest rates will stay at, basically, zero isn’t going to do much to revive demand in the faltering economy, because if businesses were going to borrow money, they’d be doing it. (It’s not like money isn’t being loaned, though — consumers are borrowing plenty of holiday-giving money at 18-25%.) No, the thing that was NEW! about this Fed announcement was that now the Fed isn’t just fighting inflation; it’s also getting serious about its stated task of providing for full employment. (Be that as it may, the Fed didn’t really go nuts; it left wiggle room, reassuring creditors that if dung spontaneously turned to platinum and inflation somehow started picking up, don’t worry, it’d raise rates.)

Not only that! The Fed is doubling down on its proud commitment to restoring Our Nation to the enviable condition of a mere one in twenty labor-force participants officially out of work. How? By agreeing — wait for it! — to purchase $40 billion per month in mortgage securities, until sanity, and NAIRU, are restored.

The undeniable upshot of this is that the US Federal Reserve (along with let’s face it, the Federal government, the Fourth Estate and most of academia) is committed to putting America’s workers back to work — as long as those workers remain shackled. Why do I say this? Well, there were two policies that were key to blowing up the giant real-estate bubble of the Dubya years: 1) sustained low interest rates (which increased the selling price of land, and made further increases a very good bet) and 2) Purchasing, via the quasi-governmental corporations Fannie Mae and Freddie Mac, billions and billions of mortgages from local banks, so that banks could make more mortgage loans, further increasing demand for land, blowing up the bubble still more.

Since the Fed is now pursuing a very similar strategy, isn’t it clear that it is eager, even desperate, to start the cycle again?

I suppose, when it comes down to it, we have to admit that the Fed (and, let’s face it, the Federal government, the Fourth Estate and most of academia) aren’t actually opposed to things like jobs, prosperity, economic security, a thriving middle class, etc. It’s just that they’re not willing to have such things at the expense of a healthy climate for land speculation.

Make no mistake about it, folks: if private ownership of land and natural resources is sacrosanct, and if (therefore) public revenue must come from taxes that penalize production, the NAIRU is a fact of life, and the Fed is doing its best to help us out of s sticky situation. But the economy doesn’t need its ball and chain. We can unshackle labor. We can (once again) have an economy of abundant employers competing for valuable workers.

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