The Fed Should Let Middle-Class Workers Prosper

The Fed’s Phillips curve model isn’t working anyway. The unemployment rate has come down to 5 percent and the inflation rate is near zero. According the Fed, inflation ought to be 4 or 5 percent. It’s not. The dollar is up. Oil and commodities are down. There is no global rise of inflation. And there’s a strong worldwide demand for greenbacks. This is good, not bad, according to veteran free-market economist Alan Reynolds. He’s right. What causes inflation? Bad money. Excess money. Too much money chasing too few goods. How do we measure this? We use market-price indicators, such as commodities, the dollar exchange rate, and Treasury inflation expectations.

.. Supply-side policies to reduce burdensome taxes and regulations will grow the economy and reward workers. That’s what’s missing from the picture. The Fed should wise up and stick to price stability rather than slamming workers. And China should let markets determine currency and stock prices instead of the central planners.

Then we can get bullish again.

This billionaire thinks the Fed is missing the hyperinflation in the Hamptons

His latest investor letter recycles all these ideas, inveighing against the Fed’s “fake prices,” “fake money,” and “fake jobs,” before zeroing in on where inflation is really showing up — his wallet:

Check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like.

That’s right: Paul Singer thinks Weimar-style inflation might be coming because he has to pay more for his posh vacation homes and art pieces.

Now, it’s true, if you’re a billionaire who’s interested in decorating your high-end real estate with high-end art, then, yes, your personal inflation rate is higher than others. But tough luck. (I’m pretty sure you’ll manage). The Fed, you see, isn’t worried about the Billionaire Price Index. It’s worried about inflation on goods and services we all face. And that, despite zero interest rates, is still below the Fed’s 2 percent target. That’s not going to change anytime soon, either. Indeed, just because the super-rich are bidding up the prices of houses in the Hamptons doesn’t mean that middle-class people, whose wages are flat, are going to bid up the price of, well, anything.

Fed Rate Hike Might have no Fix

On the other hand, they could be wrong, in which case a rate hike could end the run of good economic news. And this would be much more serious than a modest uptick in inflation, because it’s not at all clear what the Fed could do to fix its mistake.

I’m not sure why this argument, which a number of economists are making, isn’t getting much traction at the Fed. I suspect, however, that officials have been worn down by incessant criticism of their policies, and want to throw the critics a bone.

But those critics have been wrong every step of the way. Why start taking them seriously now?