Bernanke’s Cruel Hoax

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“Now we are in an era of in which the malaise and befuddlement of the Carter years is being echoed under President Obama. The nature of the stagnation is slightly different. Consumer price inflation hasn’t hit — yet. But the sense of frustration and malaise and policy indecision has hit. The questions are whether Congress will revise its mandate to the Federal Reserve or whether a new chairman with the capacities of a Paul Volcker will have to be brought in. And then the question of who will be emerge to rise, Reagan-like, to the presidency. How ironical it is that the debate is once again coming into focus over the cruel hoax of a law that required the soundness of our money to be compromised for the cynical promise of full employment.”

* * *

Those are the words with which we concluded an editorial two years ago when the drums started beating for the repeal of Humphrey-Hawkins, the law that makes reducing un-employment one of the goals of the Federal Reserve. We thought of them in the wake of Chairman Bernanke’s remarks at Jackson Hole, where he vowed that the Fed would act to promote, among other things, “sustained improvement in labor market conditions in the context of price stability.”

That’s the kind of language a Federal Reserve chairman has to use to thread his way through Humphrey-Hawkins. Shortly before Mr. Bernanke started speaking, the value of the dollar was edging upward. It had reached more than a 1,650th of an ounce of gold, still a shockingly low value that would have flabbergasted the Founders of America, not to mention the Founders of the Fed. The chairman had barely spoken than the value of the dollar started collapsing.*

We don’t blame Mr. Bernanke for this. The constitutional burden is on the Congress, which was, in Article 1, Section 8 of the Constitution granted the power to coin money and regulate the value thereof. Leading figures in the Congress are now clearly of the mind that it would be a smart move to repeal Humphrey Hawkins and free the Fed to focus on prices and let private businesses, labor unions, and in individuals decide what to do about jobs.

One bill to this effect, the Sound Dollar Act, has been offered by Kevin Brady, a Texas Republican who serves as vice chairman of the Joint Economic Committee. We remarked in April on this measure. But the point to mark at the moment is the hostility with which Humphrey Hawkins was met on the Left. It was the New York Times that, back when the bill was introduced in 1978, warned that it would amount to a “cruel hoax on the hardcore unemployed. ”

Well, here we are, nearly 25 years after that prophetic editorial was issued by the Times, and the hoax is being sprung once again. We have gone more than 42 months — nearly four years — with unemployment above 8%. One would think that Mr. Bernanke himself would be begging the Congress to relieve him of Humphrey-Hawkins. Instead, he has told the Congress — at an October 4 haring, according to Bloomberg News, — that “I think we can make the dual mandate work.”

“I think it’s worked pretty well,” Bloomberg News quoted Mr. Bernanke as saying. “But, of course, it’s up to Congress. If you want to change to a single mandate, we will do whatever you assign us to do.” Out-of-work Americans deserve better than this kind of diffidence. At the end of the day the logical person to lead a campaign against the dual mandate would be the Republican nominee, and a good surrogate on the issue would be his vice presidential nominee, Congressman Ryan, who clearly understands the issue. At the first whiff of buckshot they can cite the Times. If even it thinks the employment mandate on the Fed is a cruel hoax, it’s hard to see why this issue should be met with silence.


* To less than a 1,690th of an ounce of gold at the time of our writing.

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