America’s newest Federal Reserve Chairman, Kevin Warsh, isn’t afraid of bucking the trends or deviating from the trodden path. He’s already thrown out nearly two decades of Fed messaging policy and trashed the Fed’s recent efforts on inflation. He’s not interested in “going along to get along.”
This isn’t Warsh’s first rodeo at the Fed, and he was just as eager to break from the establishment in 2010 when he left the central bank the first time as he appears to be today. Here’s an excerpt from Warsh’s last speech as a Governor at the Federal Reserve in 2010. He chastized fellow policymakers for accepting the malaise that was upon the economy then as a “foregone conclusion.” He said:
After a cyclical boost early this year, the current state of the U.S. economy is unimpressive: modest growth in output, high levels of unemployment, stagnant wages, low levels of consumer and business sentiment, and volatile financial markets. Extrapolating from recent data, many in your business and mine predict only a middling recovery in the next several years. They call it “the new normal.” I call it the new malaise.
The prevailing theory has it that U.S. policymakers should not deny our foregone fate. We should accept smaller improvements in output and employment and productivity over the horizon. We should not stand before you and feign optimism or profess misplaced hubris. Instead, we should resign ourselves to the new normal now upon us, and conduct policy accordingly. In particular, central bankers in advanced economies–against a backdrop of disinflation–should be comfortably permissive in the conduct of monetary policy, still more encouraging of still more accommodative central bank policies for still longer periods. That is the last best hope, they argue, to preserve the remaining vestiges of a golden age that is no more.
I reject this view. I consider this emerging ethos to be dangerous and defeatist and debunked by America’s own exceptional economic history. The dour economic tale being told is not inevitable. Our citizens are not unwitting victims of some unavoidable fate. The current period of subpar growth and high unemployment is real, but it need not persist. We should not lower our expectations. We should improve our policies.
Warsh wasn’t only talking about his fellow Fed officials; he was pointing his words at policymakers in the federal government as well. He concluded his speech with a call to action, explaining:
Monetary policy has done much to ease credit conditions and improve financial market functioning. And it is playing an important role in setting the conditions for the real economy to prosper. But, the Federal Reserve cannot and should not do it alone. Other policymakers must bear their burden and do their part to encourage more-robust economic growth and establish the conditions for stronger employment.
Action Line: It’s good to see someone at the central bank who believes in America’s future and isn’t afraid to encourage others to do the same. Click here to subscribe to my free monthly Survive & Thrive letter.
