US Federal Reserve’s James Bullard: Why Unemployment Targets Won’t Work

For the mainstream, macro-policies such as inflationism has been immensely expected to solve “micro” problems. The popular wisdom specifically fixates on the “money illusion” or “price illusion” effects of inflationism, where experts see people as having the tendency to think of currency in nominal, rather than real, terms (wikipedia). 

In short, so-called experts think that people hardly think at all. Everyone of us, except them, are boneheads.

The premise where people can hardly feel, notice and respond to the changes in the purchasing power of their nominal currency serves as justification for governments to manipulate money supply intended to DECEIVE people into attaining so-called economic objectives, like lowering real value of wages. (So much for so-called "virtuous" and "transparent" governments) 

Well it does seem that even some officials of the US Federal Reserve recognize the folly of such premise.

Austrian economist Joseph Salerno at the Mises Blog refers to the dissent by US Fed President of St. Louis James Bullard on unemployment targets: (bold mine)

The Fed has committed itself to maintaining its zero interest rate policy as well as quantitative easing for as long as the unemployment rate remains above 6.5 percent (and inflation rate below 2.5 percent). James Bullard, the President of the Federal Reserve Bank of St. Louis, heroically dissents from this policy of unemployment targeting, which is basically a reversion to the crude and discredited Old Keynesian doctrine. In a speech last month entitled “Some Unpleasant Implications for Unemployment Targeters”, Bullard, himself a New Keynesian inflation targeter, stated:

Attempts to address the various labor market inefficiencies solely with monetary policy do not work very well because improvements on one dimension are simultaneously detriments on other dimensions. . . . monetary policy alone cannot effectively address multiple labor market inefficiencies, and so one must turn to more direct labor market policies to address those problems.

Unfortunately, President Bullard did not articulate those “more direct labor market policies,” but they would include: the repeal of minimum-wage legislation, which destroys jobs for the unskilled; the repeal of the National Labor Relations Act, which coerces employers into collective bargaining and privileges union “insiders” against non-union “outsiders” causing unemployment or lower wage rates among the latter; and the phasing out of unemployment “insurance,” which encourages unemployed workers to spend an excessive amount of time in “searching” for jobs.

In short, mainstream’s oversimplification of micro conditions as merely driven by a SINGLE variable (price levels) signifies as arrant myopia. 

There are many more or equally important factors, such as the state of property rights and other political hurdles (regulatory environment, taxes, mandates, unionism and etc..) that influence people’s incentives to conduct commercial activities.

Moreover, price level manipulation theories hardly ever consider the invisible (opportunity costs) and the secondary effects of such policies: particularly price instability (boom bust cycles, stagflation, hyperinflation) and economic discoordination.

The reality is that so-called economic objectives have been used as front or as excuse for the real design: transfer of wealth from society to the political class and the politically connected groups.

Ironically, the gist of the wisdom of economic talking heads which mainly belittles on people’s capacity to think, is founded on self-deception (from highly flawed model based assumption) and on the pandering to the political class.

Yet many fall prey to the political contrivance, "lies told often enough becomes the truth"