Yellen’s focus on the under-employed is steering monetary policy toward a bold experiment: The Federal Open Market Committee will use the big, blunt instrument of low interest rates to push the jobless level low enough to pull more labor-force quitters and part-timers back into full-time work.
The hope is that it will kick-start a virtuous cycle of investment, higher productivity and better pay that will heal the vestiges of the worst recession since the Great Depression.
It’s a “new view of the reach of monetary policy,” said Laurence Meyer, who served on the Fed’s Board of Governors with Yellen in the 1990s. It “goes against everything I taught at the university for 27 years.”
Most (all) of the people involved in the 1929 and 1937 BIG monetary mistake are dead. But history books, contemporaneous articles and “modern” analysis are still available (a new item, Scott Sumner´s opus on the Great Depression will be available December 1). Therefore, to call low (“zero”) interest rates a “big, blunt instrument” is hilariously shocking!