Bill Niskanen: Monetary Policy Radical

Several days ago a colleague of mine, having been sent a copy ofthe Niskanen Center ’s recent conspectus, wondered whetherBill Niskanen, the former Chairman of the Cato Institute after whom the Niskanen Center is named, would have agreed with a claim it made. The claim was that promoting sound monetary policy was basically a matter of encouraging “policymakers to support the Federal Reserve’s dual-mandate” and of getting “pro-growth” candidates appointed to the Board of Governors.My short answer to the question was, “No.” But it occurs to me that that answer is worth fleshing-out here, because many people may not be familiar with Niskanen’s ideas for improving monetary policy, and because those ideas show that he was far from being a cheerleader for the status quo, or for a more “pro-growth” version o f the status quo, whatever that might mean.The Dual MandateFor one thing, Niskanen was no fan of the dual mandate. That mandate had its roots in the1946 Full Employment Act and was formally established by the1978 Full Employment and Balanced Growth Act, a.k.a. the Humphrey-Hawkins Act. The latter act originally gave the Fed five years to reduce the overall (16 years or older) unemployment rate to 4 percent, while getting inflation down to 3 percent. The assumption that these goals were perfectly compatible rested, at least implicitly, on legislators ’ belief in the presence of a stable Phillips Curve, implying a negative relationship between the rate of i...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs