My Letter to the Wall Street Journal re: Fallacious Economic Theory by Fed Presidents

From: patrickbarron@msn.com
To: wsj.ltrs@wsj.com
Subject: Fallacious Economic Theory by Fed Presidents
Date: Sat, 19 Nov 2011 17:50:50 -0500

Re: Fed Official Backs Action

Dear Sirs:
Seldom does one see so many fallacious economic theories displayed in one, short article. New York Fed President William Dudley believes that buying mortgage backed securities at above market prices with money that he creates out of thin air is "ammunition", and that he has a lot of it. But the reality is that more money does not create more resources--just ask the Zimbabweans or the Weimar Republic Germans. Cleveland Fed President Sandra Pianalto thinks that the definition of "inflation" is rising prices, and she doesn't see any. (The definition of inflation is expansion of the money supply, and more money eventually leads to higher prices.) Furthermore, she subscribes to the discredited "cost-push" theory of higher prices, whereby rising factor prices, such as labor union demands, somehow cause higher prices all by themselves. Well, labor unions may demand higher wages and they may get them, but the result will be unemployment to the extent that the wage increases granted are not supported by increases in labor productivity. With such gross economic ignorance at such a high level, no wonder we are in such a financial mess.

Patrick Barron