In American federal politics, whose job is it to create jobs? It’s idealistic at best, propagandistic at worst, to say that it’s the job of entrepreneurs and the government has (or should have) absolutely nothing to do with it. The optimal climate for entrepreneurship is almost inextricably linked to public policy. So, then, whose job is it to determine the policies that lead to the optimal climate for entrepreneurship? Short answer: the Federal Reserve. For now.
This may be contrary to popular belief, but the Fed has two mandates, not just the singular mandate of maintaining the stability of the dollar. It is also tasked with “promoting maximum employment.” A bill sponsored by Rep. Kevin Brady (R-TX, obviously) would strip that second mandate and restrict the Fed to keeping the dollar in check. This is primarily blowback against the Fed’s massive purchases of Treasury and mortgage bonds, done to lower borrowing rates. Brady’s bill would also:
- give the directors of the twelve regional Federal Reserve Banks a vote on the national Fed’s policy-setting committee
- stop the Fed from bailing out “too big to fail” banks
That last one is a Band-Aid solution; the easiest way to end “too big to fail” is to make sure banks are “too small to bail,” which, of course, would be the work of Congress and the Commerce Department. The vote for the regional directors is an interesting proposal, though. The ability to provide a voice for regional interests could be a blessing and a curse depending on the directors’ capability to agree on national interests.
As for stripping the dual mandate, I do not believe that fiscal and monetary policy should be completely separate from one another, as both types of policy have effects on the economy (although I put more weight on the fiscal kind). But I also believe that federal bodies should do what they were created to do. And the dual mandate came 60 years after the Fed.
My ideal model would look something like this: monetary policy at the Fed; fiscal policy in Congress; trade policy shared between Congress and the White House. There would also have to be some office in which all three types were measured against one another, ensuring that both macro and micro perspectives were factored in. I’d trust such a person to head the Treasury Department instead of an ex-banker.
Regardless of your personal economic school, we should be able to agree that multiple schools have been part of American economics over the years, and a holistic approach to future policy is the best way to ensure a good climate for business.
