Thomas Palley has a new Op-Ed for The Globalist titled The U.S. Federal Reserve and Shared Prosperity in which he argues against ““pre-emptive inflation tightening” that sacrifices wage growth and full employment versus “testing the waters” that gives wage growth and full employment a chance.” He asks the Fed to abandon its 2% inflation target with many compelling reasons. The largely neoliberal economics profession has maintained that if inflation is low and stable, full-employment will take care of itself. Palley argues against this ideology.
The article is a short version of a full paper titled The Federal Reserve and Shared Prosperity: A Guide to the Policy Issues and Institutional Challenges.
The Federal Reserve is a hugely powerful institution whose policies ramify with enormous effect throughout economy. In the wake of the Great Recession, monetary policy focused on quantitative easing. Now, there is talk of normalizing monetary policy and interest rates. That conversation is important, but it is also too narrow and keeps policy locked into a failed status quo. There is need for a larger conversation regarding the entire framework for monetary policy and how central banks can contribute to shared prosperity. It is doubtful the US can achieve shared prosperity without the policy cooperation of the Fed. That makes understanding the Federal Reserve, the policy issues and institutional challenges, of critical importance.
I am in favour of Britain having much closer ties with other European countries, provided that appropriate institutions are created and the whole thing is brought under effective political control. But I have never been able to understand what it is that those who support the Maastricht Treaty think they are going to get out of it. Maastricht supporters are keen on ‘not being left out’. But left out of what exactly?
It seems clear that the Maastricht criteria for the establishment of ‘convergence’ were far too narrowly conceived. To fulfil the conditions necessary for a successful currency union it is not nearly enough that member countries agree to follow simple rules on budgetary policy and achieve some minimum period of low inflation and currency stability. They need to reach a degree of structural homogeneity such that shocks to the system as a whole do not normally affect component regions in drastically different ways. Moreover, arrangements should be made which ensure that when substantial changes of a structural kind do turn up the federal authority is equipped to share out any burden which ensues. It would be wrong to suppose that there exist well-defined ‘fault lines’ which can be cured once and for all. Structural changes are always going to be taking place as a consequence of political earthquakes, or for other reasons, and the Community must have some way of dealing with them.
– Wynne Godley, Derailed, 1993
A list of articles by Wynne Godley on the Euro Area:
- ‘Commonsense Route To A Common Europe’, Observer, 6 January 1991, page 28 (scan)
- ‘Maastricht And All That’, London Review of Books, Vol. 14 No. 19, 8 October 1992, pages 3-4 (link)
- ‘Derailed’, London Review of Books, Vol. 15 No. 16, 19 August 1993, page 9 (link, more here)
- ‘Curried EMU – The Meal That Fails To Nourish’, Observer, 31 August 1997, page 24 (scan)
Wynne Godley, July 1981