Sometimes people will ask me what I think of a liberal or conservative being put on the Supreme Court. I usually answer that I don’t care whether the nominee is a communist or fascist or vegetarian or utilitarian, as long as he or she is a good judge. Of course they role their eyes at my naivete. “You’d don’t really think that ideology has no impact on their decisions, do you?” No I don’t, but it shouldn’t. If I were on the court I’d rule Obamacare constitutional, even though I don’t like the bill. And I’d expect the actual justices to be equally unbiased. It’s sad that they are not.
Tim Duy recently linked to this interesting speech by Cleveland Federal Reserve President Sandra Pinalto:
I’ve been part of the Federal Reserve for a long time, more than 28 years. Those labels actually came into play when there wasn’t agreement around an inflation objective. There were some members of the Committee who felt a higher rate of inflation was appropriate. Those individuals were dubbed doves. And there were some that felt that we needed a lower rate of inflation. In fact, one of my predecessors, Lee Hoskins, was focused on achieving zero inflation. And he was considered a hawk.
We now have agreement and a statement by the Committee that 2 percent is the appropriate level of inflation. So I don’t think the titles of hawks and doves are useful when the Committee has stated that we have a 2 percent inflation goal.
If there are titles that people want to use, I would like to be labeled someone who is open-minded. Or someone who is pragmatic…
Of course a 2% inflation target should eliminate inflation hawks and doves at the Fed, and of course it won’t. That’s because even with the Fed target of 2%, policy is neither accountable nor transparent. The Fed has a dual mandate (not just inflation targeting), and the Fed doesn’t do level targeting. This allows lots of wiggle room for ideological bias.
With level targeting, Fed officials would be forced to lay their cards on the table. If a hawk wanted less inflation now, he’d know it came at the expense of more inflation later. And if a dove wanted more inflation now, she’d know that it came at the expense of less inflation later. They’d be forced into choosing the inflation path that resulted in maximum macroeconomic stability, which just happens to be pretty close to NGDP targeting (especially if the trend rate of real growth is stable.)
During 1933 most of the experts on Wall Street railed against FDR’s dollar depreciation program, insisting it wouldn’t work. Meanwhile traders drove stocks higher and higher as dollar depreciation triggered rapid growth in output. In the 1970s high inflation drove stocks lower, even as Keynesian economists peddled their Phillips Curve theories. Since 2008 lower inflation expectations have driven stocks lower, even as old-time monetarists insist there’s an inflationary time bomb waiting to explode. That’s why we need to replace the FOMC with an NGDP futures targeting regime. There are no hawks or doves on Wall Street, no ideologues. Just realists.