Federal Reserve Bank of New York President and CEO John C. Williams gave a speech Friday outlining the Fed’s monetary tightening plan, Restoring Balance. He provided succinct details over the central bank’s intended course of action, yet failed to show an understanding of the Fed and Government’s role in causing our economic woes. Thus, there is no reason to believe America’s boom and bust cycle will stop anytime soon.
One problem is the long-standing notion that the Fed is data dependent. In his own words:
We make our decisions after studying the data—lots of data.
As the story goes, the Fed uses data to make various calculations to achieve its dual mandate of maximum employment and price stability. Per the CEO:
We look at everything from food and gas prices to retail sales and inventories, from labor costs and employment figures to semiconductor inventories and shipping expenses, and from the demand for goods and services to readings on public health.
The way in which the data is utilized remains unknown. Beyond the data:
We also regularly hear from business and community leaders who tell us firsthand what is happening in the economy.
How the Fed compiles data from these so-called leaders, who these leaders are, and just how much influence they have in dictating policy is another unknown. But if the Fed is data dependent, then a great deal of harm could occur by not making the data sets or statistical models available, since there can be no public scrutiny or review done by the economic field at large.
The Fed’s process could encompass flipping a coin, or polling global elites such as the CEOs of JP Morgan and Goldman Sachs. We’d never know. The data could simply be tabulated incorrectly or utilize statistical methods which could come under sharp criticism from academia. The ability to examine data used to make monetary policy decisions for over 300 million people should never be regarded as a bad thing. It would allow for more transparency, unless of course, the point is to keep the masses in the dark over such matters?
While unseen data is difficult to disprove, the limitations on data and statistics that can be seen should also be understood. Consider:
The economy, measured by real gross domestic product, or GDP, grew about 5-1/2 percent over the course of last year, the fastest pace of growth since 1984.
And:
The unemployment rate has fallen from the pandemic peak of 14.7 percent to just 4 percent today.
In the case of GDP, if the government borrows $1 trillion and then decides to distribute stimulus checks amongst the population, GDP would increase. Yet, dollar purchasing power would certainly suffer. The unemployment rate can decrease from people exiting the workforce or by increasing incarceration rates. Though, a rising GDP and falling unemployment make for great headlines, this is not the type of country anyone would want to live in.
Data can be easily manipulated. And it’s easy to claim data dependency when no one is allowed to challenge said data. When the CEO of the New York Fed says, “our actions will always be driven by the data,” while knowing no one outside his circle is privy to such access, it’s a disservice to society at best, but may be indicative of something much more nefarious.
Last week, Jeff Deist opened the article: The New Antieconomics with a quote from Per Bylund. It seems Dr. Bylund has ample quotes to draw upon, here’s another below:
To Austrian economists, the use of data is most certainly welcomed, but the difference is that Austrians will not use data as a tool to ignore economic theory. It’s not much to ask, but if the Fed really is using data, the solution is simple: show us the data!
