If the Fed Can Stimulate, Why Is Middletown Still So Poor?

Originally published in Real Clear Markets, 5/16/2019

Middletown, OH is the locale of the much-read and much-commented on J.D. Vance memoir Hillbilly Elegy. Vance describes a part of the U.S. that’s been economically collapsed for quite some time.

Middletown’s relentlessly downtrodden situation came to mind while reading a Wall Street Journal excerpt of former Fed Governor Kevin Warsh’s recent talk at a Hoover Institution economic conference. Warsh made the point that “[W]hen monetary policymakers herald their record of job creation, they risk their institutional prerogative.” Translated, if the Fed can fix things, and celebrates being able to, it risks becoming a growth agency instead of a central bank.

All of the above of course assumes the Fed can stimulate. This is a debatable presumption. Warsh at least somewhat agrees that it’s debatable. He makes plain that “economic expansions often owe more to the resilient, macro-foundations of the economy than macroeconomic fine-tuning,” but at the same time he’s furthering the broadly held view that the Fed can play at least somewhat of stimulative role if it chooses to.