Open letter to Neel Kashkari

Dear Neel

I read that you are setting up a new research institute at the Minneapolis Fed to study inequality.

I think this is a good use of resources.

But I don’t think it’s appropriate for you to lead this or for your regional Fed to be seen to be majoring on this topic.

Fed independence is a valuable commodity, and this initiative puts it in peril.

To some it will look like you are using your discretion over regional Fed funds to push a political objective.

Your new President has Janet Yellen in his sights for simply keeping interest rates low in pursuit of the mandate.

The more conventionally conservative Congress have those amongst them that want to ‘Audit’ you, an initiative that stems partly from a concern [totally misplaced in my opinion] that you collectively lost your way by keeping interest rates low and undertaking unconventional policies like QE.

The risk that Fed appointees become politicised is aggravated by the politicians feeling that Fed employees use public money for political purposes.  Inequality is an unavoidably political topic.

Recent research and concerns about monetary policy have focused on how monetary policy works by redistributing;  and how inequality may have been a contributor to currently low real interest rates, which the Fed is accommodating.  But this would not warrant an institute for ‘Inequality’.  This would warrant a research agenda on the causes of low real interest rates;  or on whether there are alternative ways to implement monetary policy in pursuit of your mandate that have different consequences for inequality.

There is also an unfortunate personal angle to this.  Your prior pursuit of political office is bound to be used by some as evidence that this new initiative is part of an agenda to propel you once again into that career.  I don’t doubt your motives, but others might.

The best way to pursue this would be to leave the Fed and try to fund it conventionally, from NSF research grants, corporates, or wealthy philanthropists.  Inequality is rightly THE topic for those worrying about how to preserve the fruits of the enlightenment, and what we here in the UK call the mixed economy welfare state version of capitalism.  So I think you’d find there would be no shortage of willing participants.

 

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3 Responses to Open letter to Neel Kashkari

  1. Spencer says:

    Inequality stems from a cessation in the circuit income velocity of funds (not putting the upper income quintiles’ savings “back to work”). All bank-held savings (DFIs), are lost to both consumption and investment (as the CBs always create new money when they lend/invest). This is indisputably the source of secular strangulation. In almost every instance in which Keynes wrote the term bank in the General Theory it is necessary to substitute the term financial intermediary in order to make his statement correct.

  2. Spencer says:

    The deceleration in N-gDp and bull market in bonds started in 1981. This was because of the saturation in DD Vt, i.e., financial innovation for the commercial bank’s deposit classifications peaked then (viz. the widespread intro of ATS, NOW, and MMDA depositor accounts). Money velocity falls as there is a limit to how many can economize on their accruing obligations and unforeseen contingencies (Alfred Marshall’s “money paradox”). The remuneration of IBDDs exacerbates this phenomenon. Unless the CBs are driven out of the savings business the entire world will enter a prolonged economic depression.

  3. annoporci says:

    This is wrong on so many levels.

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