A sound dollar is one the of most critical (yet too often overlooked) elements of economic growth. Since the dollar is our currency, we all have an interest in promoting a dollar that remains stable in value. After all, we don’t want to work our whole lives, and save for retirement, only to find out that our savings are worth a mere fraction of what they were years ago.
Money is a measure of value, a unit of account. Similar to the way a minute measures time, or a thermostat measures degrees, money measures how much something is worth. Imagine if the minute was constantly fluctuating in value— Some days an hour was “worth” 60 minutes, other days it was worth 45 or 80. It would be impossible to plan your schedule for next week if the value of the hour was always shifting. It would be challenging to bake a cake, or even figure out what time to set your alarm clock to wake up for work. Since the dollar is a measure, it’s crucial to meticulously maintain its integrity to create a climate for economic growth.
The last decade of monetary policy has been mediocre at best. In response to the 2008 financial crisis, the Federal Reserve launched an unprecedented expansion of the monetary base in hopes of spurring economic growth. The Fed believed that through quantitative easing (purchasing $4 trillion in assets) and near-zero interest rates, businesses would have ample access to credit and the economy would create jobs. The results have been, at best, disappointing. Credit is tight for regular Americans, and job creation has been tepid. Even an official from the St. Louis Fed has admitted that these policies failed to spur economic growth.
Meanwhile, prices have been rising for many important consumer goods. The price of many groceries has risen significantly higher than our average wage growth rates, as have energy, education, and medical costs.
Instead of the Fed operating by educated guesswork, pretentiously called “discretion,”, the U.S. should adopt a rules-based monetary policy. Getting the money right is a critical component to reigniting superior economic growth.