The panjandrums of our monetary system will be gathering over the weekend at Jackson Hole, Wyoming, for their annual retreat. Dissenters in the ranks of the central bank’s governance are “increasingly vocal,” as the New York Times put it in a headline, over their fears in respect of inflation. This adds some drama to a meeting at which, the Times reports, the theme is labor markets, which fits right in with Chairman Yellen’s priority among the Fed’s mandates, full employment.
We hope they get around to the pattern of unemployment that has come ever more clearly into focus with each passing season of the age of fiat money. Between 1947 and 1971 — that is, in the first generation of the Bretton Woods agreements, under which America defined the dollar as a 35th of an ounce of gold —the unemployment rate in America averaged but 4.7%. Since 1971 —that is, since America’s abandoned Bretton Woods and opened the age of fiat money — unemployment has averaged 6.4%.
Now we understand that the above-described coincidence does not establish causality. But what a job for all the Ph.D.s among those who manage what James Grant likes to call the Ph.D.-backed dollar. Let them look, too, to whether the Humphrey Hawkins Full Employment Act of 1978 turns out to have been a good idea. It was the law that gave the Fed its jobs mandate. When President Carter signed that dog’s breakfast, unemployment was 5.8%. It hasn’t been that low in the entire Obama presidency.
Despite, of course, the trillions of dollars the Federal Reserve has added to its balance sheet. If we’ve been banging this drum for a while it’s because of our conviction that the solution to this puzzles lies at the bottom of our economic woes. We are living in an age of illusion. We celebrate, say, the sages of Berkshire Hathaway. Yet the value of a share of Berkshire has plunged to something like 159 ounces of gold from the 269 ounces of gold a share was at, say, the day that George W. Bush acceded to the White House.
No wonder there is no joy in the land, even if the Dow Jones Industrial Average is bouncing in and out of record highs. The Obama presidency is nearing the final turn. Savers have been devastated. The market isn’t what it seems. No one wants to lend and no one wants to borrow. Unemployment is still above where it was when Congress gave the Fed a mandate to bring it down. A new Fed chairman has made jobs her signature. But will anyone at Jackson Hole ask whether it is the fiat nature of our money that got us into this hole in the first place?