Tuesday, November 24, 2015

Nader man-splains, Yellen idiot-responds

So...many people may have missed Ralph Nader's "Open Letter To Chairwoman Yellen From the Savers of America," that he published on Huffpo at the end of October. In general, I don't have much use for Nader, but he does hit on some good points in the letter. A snippet:
We follow the reporting on your tediously over-dramatic indecision as to when interest rates will be raised - and no one thinks that when you do, it will be any more than one quarter of one percent. We hear the Federal Reserve's Board of Governors and the various regional board presidents regularly present their views of the proper inflation and unemployment rate, and on stock market expectations that influence their calculations for keeping interest rates near-zero. But we never hear any mention of us - the savers of trillions of dollars who have been forced to make do with having the banks and mutual funds essentially provide a lock-box for our money while they use it to make a profit for their firms and, in the case of the giant banks and large mutual funds, pay their executives exorbitant salaries...
That's quite fair, in my opinion. The Fed has been using interest rates as a tool to manipulate the economy, mostly to cover up problems therein, for far too long. In my opinion, it shouldn't be allowed to touch the rates, except in extraordinary circumstances, because Nader is right: it's beyond useless to save money right now and has been for over a decade, truth be told (the previous Administration was doing the same sorts of things, after all).

But beyond him just being right about this, he also notes something of vital importance, the assumption by the Fed that there is a "proper" inflation rate, a "proper" unemployment rate, that these things are there to be controlled, can be controlled, and should be controlled. And of course, the people in charge assume they know what the proper rates are and assume they know exactly how to produce them.

This has been a major problem in the field of economics as relates to government policy for a long time now. Many of the heavyweights (well, they assume they are heavyweights) in this field, from officials like Bernake, Yellen, Gethner, and Lew, to people in the private sector like Krugman, Summers, and Corzine, think the economy is a system that can be easily controlled. They wrongly believe that government policy with regard to interest rates and the money supply (and tax rates and other policy tools) represent simple inputs into the system, to the extent that changing these things will have a corresponding impact on the economy, will lead to entirely predictable results.

Interestingly enough though, the above portion of Nader's letter is not what received the most attention. Rather, it as this portion, near the end (my boldface):
Chairwoman Yellen, I think you should sit down with your Nobel Prize winning husband, economist George Akerlof, who is known to be consumer-sensitive. Together, figure out what to do for tens of millions of Americans who, with more interest income, could stimulate the economy by spending toward the necessities of life.
Annie Lowrey at New York Magazine called the above bit "mansplaining":
Worst, Janet Yellen, with her small lady brain, has failed to grok that low interest rates harm savers. She'd better sit down with her husband so he can explain that to her!
Of course, this isn't the first time Nader has been called to the carpet for being misogynistic. His rant about Hillary Clinton to Larry King oozed sexism, there's no way around it. From it:
King asked Nader about recent accusations that Nader has lobbed at Clinton, namely that she evinces a “shocking militarism that is a result of trying to overcompensate for her gender by being more aggressive and macho,” and that she’s “reversing the tradition of women of peace.”

“But isn’t she moving more toward the left?” King asked.

Nader, in a performance that most of us who lived through the 2000 election remember, scoffed at this idea, painting Clinton as a warmonger who would put any Republican to shame. “She’s never seen a war she doesn’t like. When she was on the Senate Armed Services Committee, she never saw a weapon she doesn’t like,” Nader ranted.

Then he went full-blown sexist, decrying “the tradition of these macho women who, when they finally get responsible positions—like Madeleine Albright, Condoleezza Rice—it’s like they have to out-macho the men instead of saying, ‘We come from a peace advocacy tradition.'” He then went on to spell out how women, in his eyes, have a unique responsibility to be peaceable, because of the historical origins of Mother’s Day.
Yuck. That's pretty ugly stuff. One could argue that when Nader tells Yellen to "sit down with...[her] husband," he's merely suggesting that she get some help on the issue from a highly respected economist. But given Nader's past misogyny, I think such a reading would be a little naive; he was being a sexist pig in his letter to Yellen in my opinion, there's no question about it. Calling it "mansplaining" is completely fair.

That said, Nader's complaints are also still fair, are not undone by his obvious sexism. And surprisingly, Yellen decided to respond to Nader, as detailed by Ylan Q. Mui at WaPo. With regard to the sexism, Yellen takes the high road and ignores it. With regard to the meat of Nader's letter, Yellen says the following:
Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers? I don't believe so. Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered. True, savers could have seen higher returns on their federally-insured deposits, but these returns would hardly have offset the more dramatic declines they would have experienced in the value of their homes and retirement accounts. Many of these savers would have lost their jobs or pensions (or faced increased burdens from supporting unemployed children and grandchildren).
Note the absolutes in Yellen's response: "unemployment would have risen," "home prices would have collapsed," "savers would have lost their jobs or pensions," etc. All of these things would have happened, if the the Fed hadn't acted as it did act, end of story. There's no room for "might have" or "could have" here, except in one case: "savers could have seen higher returns." The arrogance is striking. Yellen supposes she has absolute command over the economy, that it is controlled wholly by Fed policy, that such policy had perfectly predictable results and that any change to past policy would have had drastically different (though still predictable) results.

Beyond the arrogance, this is just stupid, the supposition of absolutes in all of this. But again, Yellen is hardly alone in this regard, as a noted above, so her sex is entirely inconsequential (before anyone accuses me of mansplaining).  The economy is an open, complex system. Changing things like interest rates will impact it, no doubt. And in the short term, maybe the impact can be anticipated to some extent. But Yellen is looking at the long-term here as well. Assume, for instance, that the Fed hadn't systematically slashed the interest rate starting in 2008  (better yet, assume it hadn't starting in 2001). Perhaps unemployment would have been even higher in the short term, perhaps home prices would have collapsed even further and the market would have dropped even more. Corrections happen. The business cycle is a reality, Bill Clinton's arrogant claims to the contrary notwithstanding.

The assumption that the economy could not have adjusted and recovered without action by the Fed is untenable. Again, such an assumption reflects an arrogance on the part of some economists that reality simply does not justify. They didn't see any of the problems coming, after all. Their crystal balls are defective and always have been, because they proceed from a flawed set of assumptions grounded in an unreality: that the economy can be defined and controlled by mathematical functions, when it absolutely cannot (because the economy responds to billions of individual choices and to outside events, none of which allow for mathematical certainties).

So yeah, Nader is mansplaining. And it's fair to chastise him for such overt sexism. But Yellen's response doesn't counter Nader's other points in the least. Because it's a response built on arrogance and stupidity.

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