The Federal Reserve’s near-zero interest-rate policy might well end in our lifetimes. By the end of this year? Early next? The uncertainty of that monetary shift has created market havoc for months.
John Taylor, an economist who served four presidents, believes it’s past time for the Fed to “renormalize” interest rates, a newsy bit he expressed at a recent luncheon talk. Taylor was in Kansas City to receive the Truman Medal for Economic Policy, a biennial honor given by the Truman Library Institute in partnership with the Economic Club of Kansas City, UMKC’s Bloch School of Management and the Missouri Council on Economic Education.
Taylor paid his respects to the 33rd president by highlighting the “flurry of economic institution building” that occurred in Harry Truman’s White House in the years following World War II. Under Truman’s watch the International Monetary Fund, the president’s Council of Economic Advisers and the congressional Joint Economic Committee came to be. The General Agreement on Tariffs and Trade, the Truman Doctrine, supporting Greece and Turkey against a threat of Soviet expansion, and the Marshall Plan, which helped rebuild Europe, soon followed.
It all added up to a legacy of rules-based economic policy that mitigated “evils” of “competitive devaluations and currency wars,” Taylor recounted.
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And there are lessons to be learned from that as “today the challenges facing the international monetary system eerily resemble those at the time of the creation,” said the Stanford professor and noted economics blogger. (Find the text of his luncheon talk on his blog, Economics One.)
The Fed’s minimalist interest rate policy — which didn’t seem to have any effect at all on credit card rates, by the way — certainly helped the nation emerge from financial collapse. But, Taylor says, as the recovery proceeded it helped create a kind of currency war as other central banks around the globe followed suit. In his talk, Taylor laid out a series of prescriptive measures, starting with an agreement among the major central banks to reform policies “where each country commits to certain rules.”
Taylor’s visit here punctuated a good week for the profession. It followed the announcement of the Nobel Prize in economics, which was given to Angus Deaton. The Anglo-American scholar, who has long taught at Princeton University, is widely praised for his work on economic development, poverty and what has become a ubiquitous concern — inequality.
His recent book, “The Great Escape: Health, Wealth and the Origins of Inequality,” was reissued this year in paperback and proves Deaton to be an eminently readable practitioner of the “dismal science.” His primary focus on wealth and health, on material and medical well-being, rather than on one or the other, is compelling. His global research, his emphasis on how real lives are lived and his recognition that there are both good and bad consequences to pronounced inequality will be enlightening to general readers who want to take on this serious stuff. His controversial conclusions that certain kinds of international aid might do more harm than good are certainly worth listening to as well.
Some contend that Deaton is less of a polemicist than Thomas Piketty, the Frenchman who got so much surprising attention for his door-stopper of a book, “Capital in the 21st Century.” Piketty was one of the first economists to highlight income inequality more than a decade ago, but Deaton may yet prove to be more approachable.
“Income inequality” has been a rallying cry on the left for a while, and presidential candidates in both parties use the term to score rhetorical points.
Deaton, the freshly minted Nobel laureate, gives us a way to make inequality and its consequences meaningful.