Critics Challenging the Fed's Policies: Central Planning Advocates Clashing with Central Planning Advocates
Critics Challenging the Fed's Policies: Central Planning Advocates Clashing with Central Planning Advocates
Repeat it consistently: there's no interest rate in existence, and the notion of interest rates is merely an illusion. There are individuals, each facing a multitude of borrowing expenses as varied as their financial situation, anticipated earnings, and savings habits.
The Federal Reserve cannot, nor does it, manipulate credit to be easily or tightly accessible, for an economy is comprised of people. And the borrowing costs for individuals vary as greatly as their income levels, future income expectations, and accumulated savings.
This truth also applies to businesses, run by individuals, as well as governments, which borrow based on the taxing power they hold over the individuals. Consequently, interest rates fluctuate wildly or do not even exist at all.
Currently, the Federal Reserve funds rate may not reflect the borrowing costs for influential figures like Jeff Bezos, Larry Ellison, and Elon Musk, who can secure loans at lower rates. In contrast, the majority of borrowers in East St. Louis would pay significantly more than the Federal Reserve funds rate, if they even have the opportunity to borrow.
Apple could easily secure loans beneath the Federal Reserve funds rate, whereas there's no likelihood of a double-digit interest rate for Big Lots at present. The world is eager to lend to the U.S. Treasury, boasting the lowest interest rates globally, mirroring the individuals being taxed by the U.S. Treasury. Alternatively, there's likely no investor willing to lend to Haiti.
This reality should be kept in mind as the academic elite debate whether the Federal Reserve should lower or raise rates. Noburt Michel and Jai Kedia, representing the free-market Cato Institute, argue that "the Fed’s target rate may already be ‘too high,’ and that 'a case could be made to marginally reduce rates.' This perspective illustrates the naivety of modern libertarians.
The fact is, we cannot form an informed opinion on interest rates or their management, as individuals form the marketplace. What's more, debt from Beckley, WV, will attract higher interest rates compared to debt issued by Beverly Hills, CA.
However, the self-proclaimed free thinkers remain persistant. Steve Hanke advocates for a specific amount of "money supply" in circulation, yet money in circulation is dictated by production levels. Consequently, there's more money in Palo Alto and less in Stockton, irritating Hanke when he critiques the Federal Reserve, as he merely substitutes his Five-Year Plan for the Fed's.
In a letter, Texas Tech professor Alexander Salter suggested that the Federal Reserve should not reassure markets concerning interest rates but should instead guarantee the price level or nominal gross domestic product. Nevertheless, prices, like economic activity, are the result of infinite decisions made globally every millisecond. Disagreeing with Kedia, Michel, Hanke, and Salter, it is clear that the Federal Reserve has no capacity to plan anything.
The clearest indication that the Federal Reserve only matters to the economists who work there and those who criticize it, is the health of the U.S. economy itself. If the Federal Reserve held even the tiniest fraction of the power that the academics imagine it does, the U.S. economy would be in such dire straits that there would be no jobs for econamists wanting to design charts, equations, monetary aggregates, and theories.
In essence, the Federal Reserve's critics and the Federal Reserve themselves resemble Alabama and Auburn football fans, quarreling over discrepancies that can be reduced to location and team loyalties. Football enthusiasts vs. Football enthusiasts. Central planners vs. Central planners.
- John Tamny, an economist, agrees with the Federal Reserve's argument that interest rates are not uniform across individuals, as they vary based on income levels, future income expectations, and savings.
- Noburt Michel and Jai Kedia, along with other economists at the Cato Institute, argue that the Federal Reserve's interest rate is potentially too high, but Alexander Salter from Texas Tech University suggests that the Federal Reserve should focus on guaranteeing the price level or nominal GDP instead.
- Steve Hanke, a prominent economist, advocates for a specific money supply in circulation, but his proposal is criticized by others who argue that money supply is dictated by production levels and cannot be managed by a central institution like the Federal Reserve.
- Notably, Norbert Michel, Jai Kedia, Steve Hanke, and Alexander Salter all contribute to the ongoing debate about interest rates and monetary policy, but their perspectives differ significantly, reflecting the complexity of economic issues and the challenges of formulating effective policy.