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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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.
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
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 http://www.themoneyillusion.com/?p=14288#comment-156716 and then an updated version here http://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.)
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.
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.
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.
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.
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.
18. May 2016 at 12:36
FYI, the link to the OC Register editorial 404’s on mobile devices.
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
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.”
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.
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.
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.
18. May 2016 at 18:27
God only knows what cockamamie plan Sumner is leading into with this question.
18. May 2016 at 19:27
Would you and George co-author a primer?
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!
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. 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.
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
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.
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.
21. May 2016 at 05:31
Thanks Youko.
21. May 2016 at 05:32
Thanks Renee and Harvey.