This week’s decision by the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve to formally ditch an unemployment target as a central mandate for determining interest rates is, in no small way, a metric unto itself. In the most delusional of days, I could erroneously conclude that enough of the Committee have been reading my blog and countless other rational commentators that they realized the fallacy in a metric that fails to measure what it purports. For those of you who didn’t read the FOMC Statement this week, Janet Yellen’s nurturing leadership debut was marked with a recognition that the Fed’s “highly accommodative stance” cannot be justified by any empirical economic mandate – like employment or price stability. What she and the Committee did not state is that the rationalization for her cheap money mandate is justified if its real beneficiaries – monetary trade wars with the rest of the exporting world and massive wealth transfers for those who already have excess – are to continue their wanton recklessness. What I find refreshing is that the masquerade of public good is being expunged from the FOMC’s illusory raison d’etre and, for the first time in recent memory, we can see that ‘accommodative’ is a shareholder interest alone.
We’re now entering the post-empirical divination phase of the Fed where “readings on financial developments” become the new bedrock for policy. The new alchemy includes ‘measures’, ‘indicators’, and ‘readings’ – an irrational subjectivity so offensive to a few as to lead one member of the Committee – Narayan Kocherlakota, President of the Federal Reserve Bank of Minneapolis – to complain that such euphemism “weakens the credibility of the Committee’s commitment…” and could “hinder economic activity.”
I remember my 10th grade train-wreck with reality when my geometry teacher father taught me an important lesson in intersubjective solipsistic dissonance. He offered to his students the following proposition: Come up with an original and unpublished proof of the Pythagorean Theorem and you get an “A” for the class. “You can even bring in a pillow and sleep through class,” he promoted at the beginning of the academic year. Long before Su and Velian published their “spherical proof” (17 years ahead, but who is counting?), I developed a proof using spherical geometry and way more steps than otherwise necessary. Proudly I dropped my opus on his desk and even more proudly he confirmed that his son had, in fact, achieved the challenge. What followed, however, was a harsh reality. The offer of an “A” for the class had an undisclosed exception: “Not if the author of the proof is the son of the teacher.” And so, for the rest of the year, I had to stay awake, study for exams, and eke out my “A” with the same toil as my fellow students. My father taught me the important lesson that motivation is productive even if the objective is capriciously subjective.
Now where does a spherical proof of A2 + B2 = C2 and the FOMC Statement merge on this chilly Spring morning just past the flirting ellipse of the precessing equinox? My answer lies in the more fundamental recognition that confronts the FOMC and us all. And for my answer I’ll plumb the depths of another timeless geometrical puzzle – the puzzle of Pi. In 1999 University of Tokyo Professor Yasumasa Kanada and his assistant Daisuke Takahasi performed in 83.5 hours a world record calculation of Pi – you know the one: 3.1415…. – resolved to 206.1 billion digits. This undertaking smashed the previous record of 50 billion digits and confirmed what the Persians, Egyptians, Greeks, Germans, and others have known for a long time – the circumferential relationship a circle has with its diameter is obsessive and transcendental. According to Dr. James Grime and others, to understand the geometry of the known universe, we only need to know Pi to 39 digits to “compute the circumference of the entire universe to the accuracy of less than the diameter of a hydrogen atom.” Like the calculations of my good buddy Pythagoras, descriptive formulae are helpful until considered at the assumptive scale at which point they become audacious and ludicrous. While we think we know that A2 + B2 = C2 and that ∏ = C/d, we don’t know what they mean and we don’t really have a clue why we can’t find the end of these circular and triadic mysteries.
When it comes to the FOMC, what we know is that what the Fed was established to do and its public cover-story justification have never been in coherence. Now, before you cast aspersions on the Fed, a note of caution. The Fed actually performs the banking purpose for which it was established and, in service to its member institutions, it’s done remarkably well. Former Chairman Bernanke was quite eloquent in reminding members of Congress – particularly the Tea Party activists – that if they didn’t like what the Fed was doing, they were perfectly within their rights to change its mandate (a challenge that no Congressman or woman was willing to do when they found out who they’d have to contend with if they took on the challenge). The problem comes when the belief of the function is met with the reality of the dissonance between actuality and projected aspiration. Justification is no more causal than it is accountable. Just because you think something ‘should’ do something doesn’t mean that it ‘agrees’ or is even complicit in your shared sense of reality. Therefore, metrics used to justify an illusion – regardless of their prima facie merits – neither hold an individual nor enterprise to motivation nor account. Just because something is observable and alleged to be measured doesn’t mean that the observational assumptions or the rules for the metrics are shared.
Janet and the FOMC get an “A” for an emerging honesty from me this meeting for unmasking what other Fed Chairs have been unwilling to admit. They’re not in this for the U.S. economy – they’re in it for their shareholders’ interests. This, for all you cynics out there, is progress. Now we have an opportunity to have a more enlivened conversation about our misappropriated belief (and blame) on an actor in a system that, while justified using idealist goals, never was organized to serve them. I’m no more motivated to jump on a Fed-bashing bandwagon than try to resolve Pi another few billion decimals. And no amount of motivation will seduce me into finding another way to “prove” a theorem constructed to explain an interesting, obvious reality. No, I found this week’s FOMC a breath of fresh air. We now admit that metrics are what they’ve always been – an attempt to encode a dogma to manipulate others – and, as a result, one more blow has been struck to the feet of iron alloyed clay! And with that metaphor, hopefully one or two of you can revel in the tapestry that is my allegory.