On checks from the Fed
In early 2016, with the U.S. economy still recovering from the 2008 crisis and inflation persistently below the Federal Reserve’s 2% target, the rationalist writer Eliezer Yudkowsky published a polemic arguing that Fed chair Janet Yellen had no excuse for tolerating sub-target inflation: in extremis, Yellen could simply ask Congress for the authority to mail every American a $2,000 check, and her failure to do so reflected misplaced central-banker pride rather than any real institutional constraint. The reply below pushes back — not on the macroeconomics, but on the politics. Yellen’s actual circumstances, Alyssa argues, look almost nothing like Yudkowsky’s imagined Q&A.
The point isn’t that “cryonics is not 100% certain to work” is wrong — it’s correct. But an essay that went “These crazy ‘transhumanists’ think cryonics is 100% certain to work, but any twelve-year-old could see that it isn’t for <obvious reasons>, so transhumanists are all idiots!” is still bad, even though the conclusion is true. So, with that aside, here’s the passage in question: “No central banker who has not physically run out of ones and zeroes has the right to blame anyone or anything else for their own country’s deflation.”
“Or go to your government with hat in hand, and humbly say, ‘I’m sorry, we screwed up and undershot 8 years’ worth of inflation targets and we need to give the markets a sign that we’re serious this time. Can you please let us send every citizen a check for $2000 just this one time?’”
“Q. The government would never let us do that!”
“A. I could be wrong but this project does not strike me as politically infeasible, if you swallow your pride and tell them it’s become necessary.”
“Q. But that’s exactly the opposite of the way that central bankers are supposed to be sterner and more high-status than politicians and tell politicians ‘no’ about fun things they’re not allowed to do! I’d never be able to look other central bankers in the eye again!”
“A. That’s your personal problem, and it’s not the same order of problem as unemployed people slowly sinking into despair. And honestly, if you go to the legislature and ask them for the statutory authority to mail citizens checks after, say, being under a declared inflation target for three years running (…)”
Leaving aside the arguing-like-Stalin , this is absurdly over-optimistic fantasy. Yellen, and Bernanke before her, have been fighting off repeated attempts by the Republicans that control Congress to reduce the Fed’s powers, raise interest rates, and forcibly impose tighter monetary policy ( The Atlantic on GOP fury at Bernanke , CNN on Republicans and QE3 , House Republicans pressing Yellen , Yellen testimony coverage ). Her asking for that kind of power would just get her instantly laughed out of the room, and give her opponents an additional club to beat her with, as they did when she suggested economic inequality might be a problem (because that was “political”). Last month the House passed, and the Senate would-have-passed-if-not-for-the-filibuster-rule, a bill to “ audit the Fed ”, which was pushed by Republicans so they could inspect Fed policy and use the inspection as a lever to force interest rates up faster.
Under current US law (which is broken in various ways but that’s not Yellen’s fault), the only way to write checks to everyone via monetary policy is for the Fed to buy Treasuries, and for Congress to then use the revenue from Treasury sales to write the checks. Unlike the caricature, the Fed has in fact pushed for Congress to do exactly this ( WSJ on Rosengren’s comments , Huffington Post on Fed warnings ). It did sort of happen in early 2009 — there was ~$400 billion of de-facto check writing (tax cuts, larger Social Security payments, etc.) at the same time as $400 billion of Fed Treasury purchases — but this was immediately after the crisis, there was a Democratic majority in the House and a Democratic supermajority in the Senate, and it was very clearly a one-time emergency measure (alongside many other such emergency measures the Fed took independently). The chances of a similar thing happening anytime soon are slim, with Republicans controlling the House for the foreseeable future. Congress giving the Fed the power to do it whenever it feels like is in Wolkenkuckucksheim. I’m not sure it’s even constitutional — Article 1 Section 9 says that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law”, which is intended to limit spending power by anyone other than Congress.
An actual realistic plan might be to elect Bernie Sanders President, and have him cooperate with the Republican Congress to pass the audit-the-Fed bill, on the grounds that there’s a strong long-term inverse correlation between central bank independence and inflation, and this will outweigh whatever damage the Republicans can do in the short term. (Sanders was the only Democrat to vote in favor, and he did so explicitly for this reason.) This might backfire horribly, of course, but at least it stands some chance of actually happening.