We’re soon to have a Jewish mother running the economic system of the richest and most powerful country in all the world. Not actually having ever been around any Jewish mothers in real life, when I hear of one of them, all I can think of is Howard Wolowitz’s mother on the television sitcom, The Big Bang Theory. Howard (played by Simon Helberg) is a twenty-something science nerd spacecraft engineer who lives with his oppressively smothering Jewish mother, whose character is mainly known through her raspy, grating voice coming from somewhere downstairs, shouting at Howard as if he were still a child playing in his room with his playmates. Wolowitz’s mother is never actually seen, at least not in total, and only rarely appears outside of the house she and Howard share. She has no name, except “Ma” to Howard, and Mrs. Wolowitz to Howard’s friends. But her nagging voice in the next room or downstairs is a constant presence in any scene at the Wolowitz family home. If The Big Bang Theory provides a more or less accurate caricature of Jewish mothers through its portrayal of Howard’s mother, the economic system, which will be Janet Yellen’s baby in a little while, might never grow up. And it might develop a curious sartorial obsession with turtle neck dickeys and outlandish belt buckles and develop a litany of creepy and quirky strategies for making itself superficially appealing to women.
While the markets have rejoiced this week at the testimony Ms. Yellen has provided in her Senate confirmation hearings (‘Yes’, she more or less said, ‘I will keep the financial market plutocrats high on Fed-distributed smack for so long as it takes the morale of the working class to improve’), they have barely noticed that the reorganization of a sixth of the US economy is not faring so well. President Obama has been forced to quell his collectivist impulses, at least by a trifle, backtracking from their penultimate expression in his signature heath care insurance program colloquially known as Obamacare. He issued a mea culpa last week, and pledged to allow people to keep, like he initially promised, the health insurance they had before he completely jumble-fucked the whole system with the ‘Affordable Care Act’, whose very name is a classic Orwellian lie. (The Act makes things more expensive rather than affordable, and isn’t about providing care, but about providing health insurance. No health insurance company ever changed a bedpan or administered a dose of chemotherapy.) To say that Obama’s prestige and power have faltered a bit in the breech would be like saying the South suffered a few casualties at Gettysburg. Stick a fork in his ass. Obama is effectively done as the domestic diva President. He’ll now need to find an international imbroglio of his liking (i.e., not Syria) in which to embroil the nation sufficiently that it turns its attention from the disaster of his signature achievement if he wishes to remain relevant in the public psyche in any sort of non-derisive way.
Of course, the Obamacare-mandated reorganization of a sixth of the economy is being undertaken by only the nominal government, the fact of which the markets have apparently internalized. The markets know the real potentate of the economic system they pretend to care about is the US Federal Reserve. And the US Federal Reserve doesn’t have to worry about fiscal problems, or health insurance mandates, or debt ceilings or shutdowns. It just keeps on printing, spending $85 billion per month that it has created from thin air and that doesn’t appear on any of the nominal government’s ledgers. It now holds on its balance sheet well over a sixth of annual GDP, and adds to its pile every day. One wonders though, when the markets will have finally discounted unto infinity the addition of $85 billion of new money every single month, such that stock, bond and housing prices, inter alia, at least pause in their relentless appreciation. Or is this time really different? Will these financial assets finally be the ones that grow all the way to the sky?
The only way Yellen will be able to end QEIII is to inflate away the impact of the purchases, an effect which is ironically also the mechanism through which she thinks the employment markets might improve because of the cash infusions. The inflation she seeks will operate to ameliorate the impact of her actions, never mind the dilutive effect of adding more and more cash to a pile devoted to saving the labor markets, even as it is not a lack of money that ails them. In a year from now, the $85 billion of money each month will be added to a pile that has grown by over a trillion dollars in the preceding year. The Fed’s balance sheet will have expanded by roughly a quarter. Quantitative easing offers a real-time illustration of the principle of diminishing marginal returns. More and more of anything has less and less effect. Junkies know the principal well. Will the Fed be forced to increase the monthly dosage once it figures out the declining impact of its actions? Along those lines, I bet that the Fed acts to increase the “stimulus” before it tapers. In fact, I bet the Fed never tapers, but pursues a second derivative strategy of increasing the stimulus at an increasing rate in order to avoid that dreaded bugaboo, deflation, until either the Fed, or the economic system itself, lies in a shambles, an all but inevitable outcome when the illusions created by its actions are revealed for the lie that they are.
The Fed’s fear of deflation is misguided. Deflation, i.e., a declining price level, is the natural state of economic affairs, and particularly so in an industrialized economic system. Manufacturing should get more productive, not less, over time. Production volumes should increase, not decrease. Returns on capital should marginally decline, not increase, as production meets demand. But deflation is every economist’s greatest fear, all because the economic catechism (mainly neo-Keynesian) says that economic activity is greatly impaired when everyone decides to delay purchases, waiting on lowered prices. Which is outrageously myopic. While there is inevitably an initial deflationary delay when prices begin declining, as happens at the beginnings of a contraction, which is temporarily painful, over time, activity always picks up, and the more so the more quickly and deeply the prices declined. People have still gotta eat. Chasing after inflation in order to juice employment has potentially severe side effects, including such as were seen in the recent Great Recession, which was more or less a direct result of the Fed’s waging a battle against a phantom deflation it saw lurking in every dark corner as the inflation rate declined more or less steadily over the nineties and aughts.
In any event, the Fed is employing a rather blunt tool if its aim is to increase employment levels. Why not instead just hire people at $30,000 or so per year to write fawning and appreciate blogs about the wonderful Federal Reserve and its magical ability to lift the economic spirits of all Americans? At $85 billion per month, the Fed could juice employment by over a quarter million people per month, doling out an annual salary of $30,000 to each (but to be really stimulating, the Fed should pay the annual salaries in one lump sum). The Fed could hold a lottery each month to see who would get the money. Everyone below the second quintile in income (the lower 60%) would be eligible, no matter their employment situation. How could this not be better for everyone, except of course, the bankers? The cognitive dissonance that writing a blog appreciative of the Fed would entail might drive a fair number to madness, but so too might years of living without a job, barely scraping by.
Switzerland is at least half-seriously considering just paying everyone a salary. Of course, Switzerland gets a free ride on the United States military, which keeps the world safe for social welfare states in Europe to be as stupid as they wish to be, while it keeps the world free for American and European capitalists to exploit abroad (i.e., in places where employment and slavery are distinctions without much difference). And it is the Swiss banking system, where all those good American capitalists can hide their ill-gotten, exploitatively-derived booty, that drives Swiss economic fortunes. For the Swiss, the financial system is their economic system, and comprises their most valuable export (the services are exported by the money flowing in to buy them). The guaranteed annual salary of about $30,000 that the Swiss parliament is expected to vote upon soon has to be considered a bribe to the Swiss people for allowing their country to be used a safe haven for all the rogue money around the world that needs a place to hide. Not bad work, if you can get it.
Considering that the source of all political and military power is economic strength, and that the single most powerful economic entity in the world is the US Federal Reserve Board of Governors (what with its ability to set prices at home and abroad through control of the world’s reserve currency), and that the Chairman of the Board of Governors is the single most powerful person on that Board, can we all just pause for a moment in wonder and awe at what’s about to transpire when Janet Yellen assumes the Board of Governors’ Chairmanship? Essentially the power of the whole world will be in the hands of a Jewish mother. Quite the achievement for women. And particularly for that subset of them who are Jewish. And mothers. Surely there is some prophet somewhere among all those Old Testament soothsayers who could foresee this happening. Did Isaiah not see it coming? How ‘bout Daniel? If not the Hebrew prophets, maybe Nostradamus?
It’s pretty obvious that there are potential drawbacks to vesting so much power in any one individual. What if the individual dies? George W Bush, when Alan Greenspan was being touted as being responsible for two decades of good economic times, famously quipped that if Greenspan died in office, he’d just prop him up in his usual chair at the Federal Reserve Board meetings. Does the Federal Reserve Board, and particularly its Chairman, carry the same sort of Secret Service protection as the President and Vice President? If not, perhaps it should. The President can be ignored as irrelevant, and mostly is, even as he tries to remake in his image a whole sixth of the economic system he nominally oversees. But a Fed chairman’s whisper has the potential to impact trillions of dollars of real goods and services that real people really need and want. What would happen if a terrorist bombed a meeting of the Federal Reserve Board? I suspect the financial and economic impact would be several times that felt when the World Trade Towers came down in the heart of the country’s financial district. The unelected Federal Reserve Board of Governors have become our de facto rulers. And I doubt the Jewish mother who is soon to assume the role of Chairman will be much different from her two predecessors. She won’t willingly do anything to disabuse the world of the notion that all economic roads pass through the Fed. But maybe, just maybe, if we’re lucky, something she can’t have anticipated will serve to reveal the lie. Maybe even before the economic system starts wearing dickeys and flashy belt buckles.
As a final note, I fully well understand that acknowledging the femaleness and Jewishness of the one who will soon be the new Fed Chairman is utterly and completely gauche. And frankly, all of this, in so far as her Jewishness and gender are concerned, is tongue in cheek. I would only care about her gender or her religion if I thought either attribute animated her decision-making, or if her religion turned out to also be her nationality, and her allegiance to Judaism proved greater than her allegiance to the United States. But I don’t believe those things about Ms. Yellen anymore than I believed that the Jewishness of her two immediate predecessors was the result of a Zionist conspiracy to capture the Fed’s power levers so that the nation of Israel might benefit. But a very dangerous state of affairs would obtain if the perception gained purchase among the general public that the Fed’s Jewishness in particular, or that of the financial system in general, where Jews are vastly overrepresented as a proportion of the population in the leadership ranks of banks, hedge fund, private equity enterprises, etc., operated to benefit Jews or Israel at the expense of everyone else. It would only take a significant reversal of fortune, such as a repeat of the financial crisis, for the polity to start seeking scapegoats, and Jews have a long history of serving as social, political and economic scapegoats. And then it wouldn’t matter that our Jewish mother keeping watch over us had our best interests at heart. Contrary to behavioral economics folklore, there is no wisdom to crowds. If there were, there wouldn’t have been a tulip bulb mania in a previous age, or a stock market mania and housing mania in this one, or the mania that yielded the Final Solution a few decades before those. Crowds are inherently psychotic, something that any Jewish mother with a sense of history should be well aware. I hope she keeps as much in mind if she happens to notice all those trees growing to the sky.