About a week and a half ago I pissed off both righty and lefty readers alike by daring to question popular economic orthodoxy. A worldwide credit crunch was threatening to take the broader economy down the crapper with it, yet the Federal Reserve Open Market Committee unanimously refused to cut interest rates, acknowledging “downside risks to growth,” but restating that their “predominant policy concern remains the risk that inflation will fail to moderate as expected.” To which I replied, “fuck inflation.”
The FOMC was impassive at the prospect of 2 million American families losing their homes, but once the credit crunch threatened to tank Wall Street they leaped into action, first flooding the markets with liquidity, and today slashing interest rates by half a percent.
Stocks soared Friday, propelling the Dow Jones industrials up more than 180 points, after the Federal Reserve, acknowledging that the stock market’s plunge posed a threat to the economy, slashed its discount rate by a half percentage point.
[…] The Fed cut the discount rate to 5.75 percent from 6.25 percent, declaring that “downside risks” to the economy have increased appreciably.
Again, I gloat — not so much because I predicted the necessity of a rate cut (I could’a been lucky,) but because my original post clearly doesn’t paint me out to be the moron so many of my critics obviously wish me to be. Sorry to disappoint.
We can argue the economics all we want (and I’m sure we will,) and I stand by my original assertion that a little inflation can actually be a good thing for the majority of Americans who owe money on mortgages, car loans, student loans, credit cards, etc. But my initial reaction was mostly prompted by the Fed’s decades-long inflation policy, which I described as “obsessively narrow at best, and intergenerational warfare at the worst.” Ten days after restating that its primary concern was inflation, the FOMC dramatically changes course. In that short time have the “downside risks” to the economy really “increased appreciably”…? Or did the volatility on Wall Street finally get the Feds to see beyond their inflationary blinders?
I don’t pretend to be an economist, and I freely admit that every single member of the FOMC has more relevant expertise in the tip of their little finger than I have in my entire body. But science morphs into ideology when we fail to question orthodoxy… and under those conditions even the experts can sometimes make mistakes.