Euro zone unemployment has reached 12%, the highest since the creation of the euro in 1999. And not only is the European Central Bank running a tight monetary policy, it’s getting tighter. Yet an enthusiasm for Austrian economics has led some Republicans to push for the Federal Reserve to become more like the ECB. Here is a bit from the “Sound Dollar Act” of Rep. Kevin Brady, a Texas Republican:
Countries whose central bank has a single mandate for price stability generally have a better record of achieving stable prices than countries whose central bank has a mandate that gives equal weight to other objectives such as maximum employment or low interest rates. … Price stability cannot always be measured solely through price indices for goods and services since such indices exclude changes in asset prices. Therefore, the Federal Reserve should monitor (A) the prices of, and the expected returns from, major asset classes (including equities, residential real estate, commercial and industrial real estate, agricultural real estate, gold and other commodities, corporate bonds, U.S. Government bonds, State and local government bonds, and other securities), (B) the value of the U.S. dollar relative to other currencies, and (C) the value of the United States dollar relative to gold, as metrics to determine whether the Federal Reserve’s monetary policy is consistent with long-term price stability.
Not only has the ECB done little to earn such praise, but GOP adamantium-hard money types would be against the slight good it has done to temper the euro crisis. Indeed, this bill would have the Fed a) tightening monetary policy when consumer prices rose, and b) attempting to puncture all manner of supposed asset bubbles. (Almost surely is this approach based on Austrian business cycle theory.) Yes, the Fed should have a different mandate, but one that combines real growth and inflation — targeting the level of nominal GDP.