John Maynard Keynes Would Think Janet Yellen Just Great

The UK's The Guardian is attempting to praise Fed chair Janet Yellen, in the clip below. I would consider it an insult if it was to be said of me that J.M.Keynes would have welcomed my views.

For the past five months, the world’s most important unelected official has been a 67-year-old former economics professor, who’s apparently still pre-gentrified Brooklyn enough to pronounce guide “goyd”. As central bankers go, America’s Janet Yellen has none of Mark Carney’s tonsured dash nor the timely rhetoric of the eurozone’s Mario “whatever it takes” Draghi. But since becoming chair of the Fed, Ms Yellen has displayed the greatest acuity about what rate-setters must do: “The low rate of wage growth is, to me, another sign that the Fed’s job is not yet done.” Bingo! While Mr Carney has set sights on unemployment, Ms Yellen doesn’t just want Americans off the dole – she wants them to get a pay rise too. And she appreciates that in the US (and UK) jobs market, the one doesn’t necessarily imply the other. All this would be welcomed by a former contributor to this paper, one J M Keynes.

In one sense though, The Guardian has it correct. Keynes would applaud her crazed low interest rate policy. But, as Keynes put it, in one of my few favorite points in The General Theory, where in an appendix Keynes discusses A.C. Pigou’s Theory of Unemploymeent:

Therefore, we cannot say what aggregate employment will be, until we know the money-price of wage-goods; and we cannot know the money-price of wage-goods until we know the aggregate amount of employment. We are, as I have said, one equation short. 

One equation short, indeed.

-RW