Tuesday, February 4, 2014

Working at the Fed Isn't Flipping Burgers

A recent (and excellent) profile of Janet Yellen reveals the little-known fact that one of the world's most powerful women ended up at the Fed because she couldn't get tenure at Harvard. That says something for circuitous career paths and life's unpredictability, as well as Yellen's determination, but as much as this has the potential for a Hallmark movie, I have to say it: she wasn't exactly flipping burgers. Despite what Internet Austrians say, the Fed is a fairly august institution, and would be a great addition to most CVs. That got me thinking: how many senior policymakers have genuine hard knock stories to tell? How many of them have been unemployed adults? Ben Bernanke (someone I respect immensely) spent, oh, approximately 43 seconds being unemployed. Richard Fisher would love to see tighter monetary policy so he can buy rare books more cheaply but I'm sure he knows that he has well-paying board roles at various Texas energy companies just waiting for him when he leaves the Dallas Fed. I'm sure Obama didn't make a lot of money as a community organizer, but presumably he wasn't in in for the dough.

It may not be healthy, but so much of our identities are tied to what we do for a living, and how we do it. People work to make money, of course, but it's equally true that the best types of work give people a deep sense of satisfaction. Not having work - or the kinds of work we'd like - hurts because it deprives us of feeling valued. You wonder if people will respect you if you don't have the kind of job you want. You give employers the right to scrutinize you and summarily dismiss you because your resume doesn't hit the right key words in their algorithm. Does this sound personal? Maybe a bit. As a graduate student, I'm technically out of the labour market right now but it's impossible to escape the nervous miasma that envelops a business school in recruiting season. I'll admit that the trials and tribulations of business school students aren't likely to elicit sympathy from most people. Fair enough. I'm not asking you to feel sorry for me, or my counterparts, because it's safe to say that we face less uncertainty than other job-seekers. Statistics suggest that most of us will end up employed, and pretty soon after school. And of course I'm not asking central banks to loosen policy so that everyone can go work at a hedge fund. The world of finance has changed. Some of the jobs of 5 years ago simply aren't there any more, and I'm not sure expectations have adjusted accordingly. On the other hand, these are bright, experienced people who have worked hard, invested in themselves and sought training in an eminently practical field. If they're so nervous about their prospects, how must the rest of the working (or non-working) world feel?

The Economist's Ryan Avent is fond of saying "Try overshooting for once." He has a point. Some have cautioned against this, saying that it would threaten hard-won credibility. But what's the point of credibility if it's never used? To put it another way - what's the point of saying "I trust my spouse", but then turning around and saying, "But I'd never let him/her go out somewhere without me"? Others say that the size of the Fed's balance sheet is a major cause of concern. Firstly, I don't buy that. Secondly, it's precisely this fabled credibility that can be harnessed to move expectations without actually expanding the balance sheet. Perhaps this speaks to a deep insecurity at the Fed about the nature of its credibility. Such diffidence is rare and often admirable in powerful people and institutions, but it has a great cost now. 

This, mind you, is a cost for the poor and the rich alike. Stock market bears have pointed to record corporate profit margins, insisting that these cannot continue, and will be eventually be driven down by rising labour costs. Count me in the camp that thinks that the stock market could survive a reduction in profit margins if it resulted in (a) an increase in revenue, and therefore an increase in total profits, and (b) a reduction of the equity risk premium. So the maintenance of an appropriate monetary policy has the potential to benefit all strata of society, except short-sellers, who are un-American and deserve to be burned (that's a joke - I understand sarcasm doesn't translate well on the Internet).

For the record, I'm not suggesting that unemployment should be the single mandate. One of the reasons why market monetarism deserves respect is that it is an oblique form of policy-making, to use John Kay's term. This is to say that market monetarism, despite its oft-cited focus on NGDP, respects various market signals and uses a complex dashboard of indicators. It also seeks to be consistent. You're as likely to see a market monetarist like Lars Christensen attacking the hyperinflationary policies of Argentina as the deflationary policies of the ECB. In fact, it doesn't even take a market monetarist to see that when you're failing on both sides of your mandate, why be in a hurry to taper, or to guide market expectations in that fashion? I suppose Chair Yellen has to stamp her own authority on the Fed, and show that she's not unconditionally dovish as some elements of the press have made her out to to be (which I think probably has a sexist element to it - well, of *course* that nice nurturing woman wants people to be employed, and forget that sound money stuff, which is for strong, resolute men). And of course the Fed has done infinitely better than the ECB in these troubled times. But I hope Yellen will remember that she has a mandate to the American people, which affects the entire world, and that rejection for most people doesn't mean having to accept a job at the Fed instead. 

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