Thursday, August 16, 2007

George Will tells the Federal Reserve what their priorities should be:

In an op-ed that celebrates the pain of lenders and borrowers in the mortgage market, Will states:
The Federal Reserve's proper mission is not to produce a particular rate of economic growth or unemployment, or to cure injuries -- least of all, self-inflicted ones -- to certain sectors of the economy. It is to preserve the currency as a store of value -- to contain inflation.
Note Will's use of the word "proper". To the casual reader that might sound like "mandated", but it's not. In any case, let's see what the Federal Reserve has to say about itself:
What are the Federal Reserve's responsibilities?
Today, the Federal Reserve's responsibilities fall into four general areas:
  • conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
  • supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
  • maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  • providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments systems
For an overview of the Federal Reserve and its responsibilities, see The Federal Reserve System: Purposes and Functions.
So, by the Fed's lights, attending to unemployment is a responsibility. But Will, says no. Or rather, he narrows the definition of unemployment to "a particular rate" of unemployment, which usually flies by the reader when in fact it's part of the deceptive language Will uses. Try it yourself. That way, nobody is responsible for anything, because the "particular rate" is undefined and therefore potentially unreasonable, impossible, or otherwise unattainable.

Apply it to George Will. He writes:
The Federal Reserve's proper mission is ... to preserve the currency as a store of value ..."
Largely true. But how about this:
The Federal Reserve's proper mission is ... to preserve the currency as a store of value at a particular rate"
No, that's not the case since conditions are always changing and no central banker worth his salt would commit to maintaining a currency at a particular rate under all circumstances.

It should be pointed out that Bill Clinton also engaged in that kind of deceptive qualifying language. Repeatedly he'd say that Policy X would not be determined "solely" by Factor A, when in fact Factor A was the overwhelming determinant. But by using "solely" the listener was misled into thinking that the factor would be little considered, if at all.


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