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Keynesianism has been wholly reversed. And in the most dangerous manner imaginable.
To be specific, the old-style “fiscal Keynesianism” was rejected fair and square by the process of political democracy. This was the core issue of the 1980 and 1984 elections — a referendum that was reinforced again and again by the Congressional fiscal policy deliberations of the Reagan era.

Yet during the subsequent decades — beginning with Alan Greenspan’s appointment to the Fed in 1987 — this anti-Keynesian verdict was subverted by conversion of its demand management doctrine to a central banking base of operation. The latter gussied-up version of demand management was then migrated to the Eccles Building — safely out of the reach of the democratic electorate.

In this new domicile, the Keynesian professors and monetary policy apparatchiks, along with their Wall Street henchmen, have seized the levers of power, functioning as unelected monetary gauleiters. That Yellen & Co. believe they are in charge of virtually everything on the main street economy and that their writ — based on nothing more than their own subjective and unexplained wisdom — now reigns supreme could not have been better expressed than by this ukase from the Fed chair person herself:

“Obviously we have to look at the pace of job creation, we have to look at what’s happening to labor force participation, to part time employment for economic reasons, to job openings, to the pace of quits, to wage inflation and other indicators of the state of the labor market. I did say when we agreed that labor markets slack has diminished to some extent, in the inter-meeting period and clearly over a longer span of time over the last several years, obviously we have made considerable progress in moving towards our goal of maximum employment. So in spite of the fact that there is some progress on that front the committee wants to see some further progress before feeling that it will be appropriate to raise rates.”

That’s right. Yellen averred that she and her posse are in charge of everything, including the status of part-time hot dog vendors and the rate at which ambitious job seekers elect to depart their current employers for greener pastures. Once more, in monitoring every feather on the economic sparrow’s back, they claim the unfettered right to keep shoveling free money to their Wall Street vassals until they get the “feeling that it will be appropriate to raise rates.”

This is unaltered Keynesian claptrap. It is the arrogant over-reach of a model-obsessed academic zealot who has no respect whatsoever for the real main street economy and for the historically proven truth that free markets are the best route to prosperity and higher living standards for the people, not the dictates of central planners.

In claiming the power to manage the microscopic details of the nation’s $18 trillion economy by the month and by the yard, the Yellen Fed has now gone beyond merely instituting some misbegotten labor economist’s version of Keynesian demand management. In fact, when it gets down to insisting that the PCE deflator must rise by at least 2.0%, not 1.4%; or that there is a meaningful difference between 5.5% and 5.2% on flawed metrics like the U-3 unemployment rate; or that the globally impacted trends like the rate of hourly and weekly wage growth are still a few decimal points too low—–what you actually have at that point is an economic putsch.

To be sure, this insanity is being pursued in the name of the so-called “dual mandate” of the Humphrey-Hawkins Act, but that’s exactly the point. The Act is utterly content-free and represents a vague Congressional aspiration in favor of jobs, prosperity, stable prices and motherhood and apple pie, too.

That the power-hungry fanatics who run the Fed have no sense of practicality and self-restraint, and, instead, believe the Act empowers them to target decimal points worth of noise, and to do so in a manner which self-evidently enriches the tiny slice of America which owns most of the financial assets, is nothing less than an unconstitutional usurpation.

Likewise, this same fanaticism is crushing savers and confiscating their wealth and property —– even as these Keynesian central bankers aver that it is all being done for the “common good.”

David Stockman June 2015

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