Sunday, January 13, 2013

How Jeff Lacker really understands unemployment

“It’s very unfair to think of me as not caring about the unemployed,” he said. “It just seems to me that there are real impediments, that just throwing money at the economy is unlikely to solve the problems that are keeping a 55-year-old furniture worker from finding a good competitive job.”

His favorite escape is driving a Porsche Boxster racecar; a model sits on a shelf at his office.

File this under ideological economists who are in the top 5% who work with their guts rather than history, models or data. For the record I fall under the same category as well since I too believe this:

As he sees it, the Fed’s current effort to reduce unemployment by purchasing mortgage-backed securities crossed both lines. He sees little evidence that it will help to create jobs. And he says that buying mortgage bonds is a form of fiscal policy, because it lowers interest rates for a particular kind of borrower.        

But as noted:

That sense of caution is deeply frustrating to proponents of the Fed’s recent efforts. The economists Christina D. Romer and David H. Romer wrote in a paper published last month that such pessimism about the power of monetary policy is “the most dangerous idea in Federal Reserve history.”

“The view that hubris can cause central bankers to do great harm clearly has an important element of truth,” wrote the Romers, both professors at the University of California, Berkeley. “But the hundred years of Federal Reserve history show that humility can also cause large harms.”         

From the NYT.

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