During the last few years we have regularly been confronted with statements of the chairmen of the Federal Reserve System that made it quite clear that they didn't know how to handle the economy and the related money circulation.
"Economy's failure to conform to rules puzzles Fed."
This title considers the possibility that the FED indeed is using some scientific rules for the establishment of future corrections in interest rates.
"When unemployment fell [in the past] to sufficiently low levels (and the current 5.1.percent is as low as it has been since 1973), then the scarcity of workers would force employers to offer higher wages.- which would soon be passed along in higher prices for consumers. That, in the Fed's universe, was how inflation happened. But the iron law hasn't seemed to be working in the 1996 the way it did in the past, and even the chairman of the Federal Reserve is struggling to figure out why."
In the next paragraph of Mr. Berry we receive an idea how far away we have driven from a sensible scientific explanation for the development of the economy. It is remarkable how the chairman of the Fed could get away with the following statement during a Congressional testimony. The following piece from the article of Mr. Berry proves how little the men and women on Capitol Hill know about the economy:
Greenspan explained what may account for the changes. "Powerfull forces have evolved in the past few years to help contain inflationary tendencies," he said, including greater international competition and workers' fear of losing jobs in a world of swift technological change. And because workers are anxious about these factors, they have demanded smaller wage increases than might have similarly tight labor markets in the past.
But Greenspan cautioned that, "at some point," workers would push harder for real wage increases-setting of the inflationary spiral.
Here we read that Mr. Greenspan is still loading the blame for all those inflation spirals of the last thirty years on the men and women who create the real wealth of the nation. He overlooks completely the immense cost burden that his financial environment has placed on the production side of the economy and how more than 35% of all the consumer prices, and probably for a major part more than 50%, consist exclusively of the costs of capital. He never considers it possible that those simple facts have some influence on the economic development.