Fed legal authority bleg

I am looking for research from a legal scholar on the Fed’s legal authority to do different things.  I emphasize ‘scholar’, I don’t want stuff on why the Fed is unconstitutional.  Someone sent me a paper a while back, but unfortunately I’ve lost the email.

I have a new editorial in the Orange County Register, discussing the minimum wage.

I’m getting depressed reading George Selgin’s new series on monetary economics. His explanations are so clear and easy to understand that I fear my own book project will fall short by comparison.

I have a new post at Econlog on why Russia’s recession was milder than expected, especially in terms of unemployment.  While they did not exactly follow NGDP targeting, their policy seemed to have moved sharply in that direction, compared to 2008-09.

 

 


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24 Responses to “Fed legal authority bleg”

  1. Gravatar of james elizondo james elizondo
    18. May 2016 at 07:13

    I read your post about the min wage in the orange county register. First of all the title seems a bit odd “The curious rise of the push for $15 wage.” Why does a desire for wage increase perplex you? Wages have stagnated since the early 80s while incomes at the top have sky-rocketed. People bought into trickle down economics while there was stability during the great moderation, but when things went to hell in 08 people realize that very little trickling actually occurred. You may ask why there’s a big push now compared to 2009 when the Dems had a filibuster-proof majority in the senate. And yet the answer is in your article when wage increases derailed a recovery in 1933. Perhaps the Dems learned not to make labor more expensive during a huge economic contraction.

    But Scott we’re now 8 years since the the depths of the great recession. The economic landscape today is very different from 1933 which means the stifling effects of wage increases back in the day may not apply today.

  2. Gravatar of Richard A. Richard A.
    18. May 2016 at 08:28

    George Selgin along with John Taylor spoke at a congressional hearing yesterday entitled “Interest on Reserves and the Fed’s Balance Sheet”. This has been posted on YouTube.
    https://youtu.be/iFPjgitq1-U?t=21m35s

    The website for this hearing is:
    http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=400628

  3. Gravatar of Alex R Alex R
    18. May 2016 at 09:35

    I don’t know if he’s a legal scholar, but Mark Sadowski made a couple of comments on this blog on that subject: first here https://www.themoneyillusion.com/?p=14288#comment-156716 and then an updated version here https://www.themoneyillusion.com/?p=25996#comment-314586

    (Found these by Googling “Maiden Lane” on your blog, to see if you had written about it. The Maiden Lane transactions were a famous example of the Fed pushing the boundaries of what it could do.)

  4. Gravatar of JP Koning JP Koning
    18. May 2016 at 09:57

    On the Fed’s legal power, you should be reading Small & Clouse… and also Hackley. In a snap, I am fluent in the Federal Reserve Act.

  5. Gravatar of Alexander Hamilton Alexander Hamilton
    18. May 2016 at 11:44

    Trickle down economics. Tells you all you need to know about the kind of confusion James wanders around in.

  6. Gravatar of ssumner ssumner
    18. May 2016 at 12:02

    James, You said:

    “Why does a desire for wage increase perplex you?”

    For all the reasons mentioned in the piece I wrote, most of which you did not respond to.

    You said:

    “You may ask why there’s a big push now compared to 2009 when the Dems had a filibuster-proof majority in the senate. And yet the answer is in your article when wage increases derailed a recovery in 1933. Perhaps the Dems learned not to make labor more expensive during a huge economic contraction.”

    Surely you must agree that if another 10% increase back in 2009 (which could have been phased in gradually) would cost jobs, then a more than 100% increase today would cost many more jobs. Why do you assume the laws of supply and demand do not hold when the economy is at full employment? Why are unions asking to be exempt for the law? So many questions, so few answers.

    Richard, Alex and JP, Thanks for the information.

  7. Gravatar of Art Deco Art Deco
    18. May 2016 at 12:09

    You could consult a copy of the U.S. Code Annotated (West Publishing Company). That will have the questions of law resolved re the components of the Code wherein the enabling legislation is incorporated. You can then follow the chain of opinions with Shepherds Citations. That’s rather retro though. A law librarian should be able to help you with Lexis-Nexus or Westlaw to find like information as well as law review articles. You need to locate a law library which will allow you access to their subscription databases if you join Friends of the Library. Try BU or BC. There may be a public law library as well.

  8. Gravatar of SG SG
    18. May 2016 at 12:32

    Scott, you should get in touch with Peter Conti-Brown at Wharton. He just wrote “The Power and Independence of the Federal Reserve”. I went to law school with him, and he’s brilliant.

  9. Gravatar of Airman Spry Shark Airman Spry Shark
    18. May 2016 at 12:36

    FYI, the link to the OC Register editorial 404’s on mobile devices.

  10. Gravatar of BL BL
    18. May 2016 at 12:55

    Scott,
    Not related to the post at hand, but did you happen to catch Martin Feldstein’s opinion piece in the WSJ?

    http://www.wsj.com/articles/ending-the-feds-inflation-fixation-1463526125

  11. Gravatar of Matthew Waters Matthew Waters
    18. May 2016 at 13:00

    In the US Code, the important sections are 12 USC sections 341 to 362. This is where sections 13 and 14 in the Federal Reserve Act are codified, for annotated US Code.

    https://www.law.cornell.edu/uscode/text/12/chapter-3/subchapter-IX

    I’ve looked a few times at Section 13 and have a hard time making heads or tails. The enumeration of powers for open market purchases is clear. The powers of local Fed branches is confusing, with many archaic banking assets like “discount or purchase of bills to finance agricultural shipments.”

  12. Gravatar of George Selgin George Selgin
    18. May 2016 at 13:14

    Dear Scott,

    As it happens, I have a post right on topic coming out tomorrow.

    And thanks for your kind words about my primer. I am sure that it will take both of our effort6s and then some to educate the public on monetary policy fundamentals.

  13. Gravatar of Matthew Waters Matthew Waters
    18. May 2016 at 13:15

    “Scott,
    Not related to the post at hand, but did you happen to catch Martin Feldstein’s opinion piece in the WSJ?

    http://www.wsj.com/articles/ending-the-feds-inflation-fixation-1463526125

    Man, that’s awful. Maybe the biggest myth is a Central Bank controls interest rates in isolation of inflation, employment and NGDP. Given the Fed’s dual mandate, the Fed simply cannot provide “normal interest rates” of, say, 5% while meeting inflation targets of 2%.

    Where central banks like BOJ and BOE have increased interest rates too soon, inflation falls and unemployment goes up. Since the Central Bank signals a lower inflation/NGDP target by raising rates prematurely, the long-term interest rates can actually be lower because the Central Bank raises interest rates sooner.

    So if a Central Bank follows its mandate for either inflation, unemployment or NGDP, the Central Bank simply cannot set higher real interest rates by fiat. If the Fed sets interest rates at 5% with current inflation and NGDP growth, then there would have to be significant deflation and unemployment. In other words, the Fed would not be following its mandate.

  14. Gravatar of Benjamin Cole Benjamin Cole
    18. May 2016 at 15:58

    The important thing is to establish authority for money-financed fiscal programs (helicopter drops).

    We can send in the tweetybirds or we can send in the whirlybirds.

  15. Gravatar of Oderus Urungus Oderus Urungus
    18. May 2016 at 18:27

    God only knows what cockamamie plan Sumner is leading into with this question.

  16. Gravatar of Pietro Poggi-Corradini Pietro Poggi-Corradini
    18. May 2016 at 19:27

    Would you and George co-author a primer?

  17. Gravatar of Major.Freedom Major.Freedom
    18. May 2016 at 19:30

    “I am looking for research from a legal scholar on the Fed’s legal authority to do different things.”

    This is like a mafia button man asking the family’s consigliere on the legality of being a button man.

    If it wasn’t for those pesky laws, Sumner’s Fed would be like Donald Trump. Springtime for Trump, and Germany!

  18. Gravatar of ssumner ssumner
    19. May 2016 at 08:47

    Thanks Art and SG.

    Airman, Sorry about that.

    BL, I saw excerpts, not my cup of tea.

    Thanks George and Matthew.

    Pietro, We are probably both too headstrong. 🙂

  19. Gravatar of youko youko
    19. May 2016 at 12:49

    Just to reiterate SG’s suggestion, Conti-Brown is a legal scholar at Penn, and his new book on the “Power and Independence of the Federal Reserve System” just game out from Princeton University Press four months ago — quite new and rather good. Its written for a general audience (he’s aiming to educate the people you exclude with the term “scholar”), so its a quick read (not always in a good way); the endnotes are amazing though, especially for this bleg.

  20. Gravatar of Renee Haltom Renee Haltom
    19. May 2016 at 13:25

    Scott – Here’s a short Richmond Fed piece on how and when the Fed’s first agency debt purchases were authorized in the 1960s. https://www.richmondfed.org/publications/research/economic_brief/2014/eb_14-04

    Someone else mentioned the 1973 piece by Hackley, the Board’s one-time general counsel: https://fraser.stlouisfed.org/scribd/?title_id=128&filepath=/docs/publications/books/lendfunct_hackley1973o.pdf

  21. Gravatar of Harvey Harvey
    19. May 2016 at 15:02

    Legal Scholar: Colleen Baker

    http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1539680

    Particularly: “The Federal Reserve as Last Resort”
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2191784

    She presented it at the Federal Reserve Bank of Chicago when I worked there, stirred up a lot of interest and debate.

  22. Gravatar of Ognian Davchev Ognian Davchev
    20. May 2016 at 03:52

    Re Russia I remember reading articles about their CB claiming to target inflation after they let the rouble float.

    I guess like other CBs they said one thing and did another. In this case for the better.

  23. Gravatar of ssumner ssumner
    21. May 2016 at 05:31

    Thanks Youko.

  24. Gravatar of ssumner ssumner
    21. May 2016 at 05:32

    Thanks Renee and Harvey.

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