Since the Volcker revolution of 1979, when monetary policy became the primary method of managing aggregate demand, wage growth has been stagnant. Now with the slightest prospect of an uptick in wages, the Fed is gearing up to raise interest rates in 2015 in order to slow the economy, even though the unemployment rate is still around 6.7% and the labor participation rate is at a 30 year low (63.0%).
Is this really the type of economic management we want for the country, where any hint of growth in middle class wages leads to the Fed slamming on the breaks? Notice that this policy decision, to use the central bank to manage aggregate demand instead of fiscal policy, coincides with a huge regressive redistribution of income and wealth.
Unfortunately, any hint of inflation or wage growth causes the Very Serious People to shout, "See I Told You So." This causes half the government to start repeating this and these type of policy actions are taken. When will policy start being based off data?
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