Fed Oversight Reform and Modernization Act Of 2015
Floor Speech
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Mr. Chair, I have an amendment at the desk.
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Thus far, this has been an interesting debate that seems to have mostly revolved around a philosophical point. On the one hand, you have arguments for increased transparency and accountability. On the other hand, you have arguments against increased political interference by this institution. I have always proceeded with the assumption that philosophical debates are irreconcilable in a lot of regards because you have to presume that the other side has a point of view.
This is not why I oppose the underlying bill. Although I hasten to add, why anybody would ever want to give more authority and control over the levers of the economy to this institution, with its track record in the last several years, including government shutdowns and the like, is beyond me. Again, it is a philosophical debate.
Here is what is not debatable: what is proposed in this bill doesn't work. It does not work. Let's back up. Essentially, color it any way you want, this bill argues for the adoption of the so-called Taylor rule. What is that?
The Taylor rule was devised by Professor Taylor of Stanford in the 1990s, looking back at the experience of the economy and what the Fed had done using a mixture of GDP, GDP potential and inflation, and he derived a formula. The problem is, again, it does not work. That is why I have offered this amendment, which would provide the Fed the ability to opt out, if we get to a stressful situation where clearly the application of the Taylor rule wasn't working.
Here is the deal. I can prove to you that the Taylor rule wouldn't work. Let me show you. We have had a couple of instances in recent history in which we can test the application of the Taylor rule, both against the Fed's mission to achieve price stability as well as achieve full employment.
This chart tracks the years 1979 to 1983. The red line is what the chair of the Fed, Mr. Volcker, utilized in the way of the actual Fed fund rates. The blue line is the Taylor rule. You can see that for many years, Mr. Volcker opted for a 5-percent increase over what the Taylor rule would have been. You can also see that Mr. Volcker was right, that he broke inflation.
Now, unless we want to return to 12 to 14 percent home mortgages and a 17 to 18 percent inflation rate, we should----
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Their rule is to break the back of inflation. Their rule is to achieve increased employment. That is the rule they use. Exercising, yes, judgment based upon ever-changing economic circumstances.
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Mr. Chairman, with all due respect to my friend from Michigan, you didn't put the formula in the bill because it doesn't exist. If it did, you would have put it in. If there would have been an absolute magic formula that would keep this economy at full employment and price stability, we would have it on the table, but no such formula exists. That is why you didn't put it in the bill. It doesn't exist.
Adopt the amendment. Allow the Fed to do the job to achieve price stability and full employment.
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Mr. Chairman, the purpose of this amendment is to ask the Fed to build a time machine because, frankly, that is the only way that this bill works.
You see, the fact of the matter is that, when Mr. Taylor, Professor Taylor, devised his study, which was groundbreaking, was important, he did so in the 1990s, looking back over the previous 10 years which, as I indicated earlier, was an unusually fairly stable period of time, unusually fairly stable, not an exceptional performance, good or bad, in the economy.
He did so with the benefit of data that had been updated over time, because, you see, the Bureau of Economic Analysis doesn't just do one fixed number that people get to rely on. In fact, in the first year they put out not one, not two, but three updates, called the advanced estimate, the preliminary estimate, and the final estimate.
But wait, there is more, to quote the Ronco ad. The next year they update again. That is called the annual reestimate. But wait, there is more. Every 5 years they do a benchmark reestimate. That is the data that Professor Taylor had the advantage of.
In essence, to ask the Fed to utilize or apply the Taylor rule or any such thing like it, which does not exist, is to ask them to have the benefit of data which is not final.
I don't know about you, but every month when the unemployment numbers come out, I have begun to view them pretty skeptically over the years. We all know the reason for that: because they get revised so much--so much.
At the beginning of President Obama's first term, when he indicated, as is often cited, that he would act to get unemployment no higher than 8 percent, he was doing so on the basis of the first estimate, which said it was 6.7 percent or something like that. The revision was 7.8 percent 3 months later.
So the fact of the matter is the Taylor rule or anything like it has the advantage of hindsight, which no rule can fully incorporate.
The purpose of this amendment--vote for it, vote against it--is if you want to do this, build yourself a time machine, because that is the only way you can reasonably, with any sense of scholarship and solid research, be able to devise a formula that would work because we don't know the conditions until quite sometime later.
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Mr. Chairman, I am not often speechless in the face of my friend from Texas' remarks.
Look, we cannot perform a calculation without accurate data. If you are going to join me and throw in with H. G. Wells and a great heritage of both literature and cinema history regarding time travel, then I can do nothing but shockingly accept your gracious support of this amendment.
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