San Fran Fed Asks If "People Understand Monetary Policy"; Finds Those With "No High School Diploma" Don't

Tyler Durden's picture


For their sake, we hope at least the answer from the Fed is "yes." Yet it is quite ironic that the subtext of this paper is that Monetary Policy can actually fail, when, get this, people don't grasp all the nuances of monetary policy. In other words, it is not the Fed's fault when it fails - it is the people's fault: "we fi?nd evidence that the relationship between unemployment and interest rates is not properly understood by households in the lowest income quartile, and by those with no high school diploma." Cue Kartik Athreya to explain to us all why only Ph.D.s understand the complexities of monetary policy when it works, and why it is those without a highscool diploma that are at fault, when it doesn't.

The Abstract:

Do People Understand Monetary Policy?


By Carlos Carvalho and Fernanda Nechio


We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether U.S. households are aware of the so-called Taylor (1993) rule. For comparison, we perform the same analysis using questions from the Survey of Professional Forecasters. Our fi?ndings support the view that some households form their expectations about the future path of interest rates, inflation, and unemployment in a way that is consistent with Taylor-type rules. The extent to which this happens, however, does not appear to be uniform across income and education levels. In particular, we fi?nd evidence that the relationship between unemployment and interest rates is not properly understood by households in the lowest income quartile, and by those with no high school diploma. We also fi?nd evidence that the perceived effect of unemployment on interest rates is asymmetric, being relevant only for interest-rate decreases. Finally, we argue that the relationships we uncover can be given a causal interpretation.



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Fri, 02/17/2012 - 13:22 | 2170186 LawsofPhysics
LawsofPhysics's picture

More tax dollars "hard" at work.  End the fucking Fed.


Yes, apparently the central bankers are just mis-understood.  So are the laws of physics and thermodynamics, now you tell me which "laws" are more subject to change for that lower 45%?  Speechless indeed.

Fri, 02/17/2012 - 13:27 | 2170221 flacon
flacon's picture

The only people who understand money are those who earn it through PRODUCTIVE private sector jobs. PhD professors are mostly in the unproductive public sector along with those who receive food stamps to keep them alive. 



Fri, 02/17/2012 - 13:31 | 2170242 LawsofPhysics
LawsofPhysics's picture

slaves and slave masters, some things never change.

Fri, 02/17/2012 - 13:37 | 2170285 Manthong
Manthong's picture

All they have to know is that "policy" in the context of the Fed is a cover word for repression.

Fri, 02/17/2012 - 13:53 | 2170390 francis_sawyer
francis_sawyer's picture

So does this mean that if I have a diploma from the "School of Hard Knocks" (ostensibly ~ an degree course that nary an elite has)... & if I commit a crime like snatching someone's purse or pickpocketing them... I'm EXEMPT from prosecution?

Fri, 02/17/2012 - 15:14 | 2170585 TheSilverJournal
TheSilverJournal's picture

The central planners of our money don't even understand the relationship between unemployment and interest rates. In reality, the Fed’s dual mandate is nonsense. Dialing inflation up or down doesn’t necessarily bring about more or less employment. In the long run, the central planning of money can only bring lower employment as resources are being misdirected into unproductive areas.  High inflation combined with high unemployment is the norm during a currency crisis.

Fri, 02/17/2012 - 16:35 | 2171197 economics1996
economics1996's picture

The Phillips Curve is complete bullshit.  The only reason unemployment declines when there is inflation is that labor becomes cheaper when there is inflation.

If we did not have price floors there would be no fucking unemployment problem.

These fucking monetarist/Keynesian clueless fucks need to get a real job.  Fucking clueless dumb ass idiots.


And any additional employment due to the lowering of realm wage rates is dependent on many other economic conditions, and is by no means a given.



Fri, 02/17/2012 - 17:11 | 2171370 TheSilverJournal
TheSilverJournal's picture

Sure, inflation makes min. wage laws less relevant. More importantly, though, the lowering of interest rates creates a false prosperity today at the expense of future prosperity by encouraging spending now of money that would have otherwise been saved and used as investments in capital to create goods in the future.

All you have to do is look at Zimbabwe to know the Phillips curve is BS.

Fri, 02/17/2012 - 14:50 | 2170721 nostromo17
nostromo17's picture

doesn't follow whatsoever - try again

Fri, 02/17/2012 - 14:49 | 2170712 nostromo17
nostromo17's picture

your acceptance/apathy is what keeps things from changing.

Fri, 02/17/2012 - 15:16 | 2170860 LawsofPhysics
LawsofPhysics's picture

And what do you know about my actions or that of my employees?  What's that? you don't know anything about what we are doing? perhaps you should STFU.

Fri, 02/17/2012 - 17:08 | 2171346 GenX Investor
GenX Investor's picture

News Flash:  Correlation = Causality...  Well done boys, excellent thesis!  What else did you come up with???

Fri, 02/17/2012 - 14:48 | 2170707 nostromo17
nostromo17's picture

Except people with food stamps could be productive if they had a job and professor are ultra non-productive having a job.

Your lack of compassion illustrates your lack of depth of understanding and your comfort being someone who assumes they have a productive job

so they don't have to give a shit.

Fri, 02/17/2012 - 15:23 | 2170891 LawsofPhysics
LawsofPhysics's picture

Rule # 1-Nature makes no promises regarding anyone's survival idiot.  I don't know what graduate school you are currently enrolled in, but I suggest you get back to work.  I, and my company, are very charitable in our giving each year.  I am in the business of feeding people asshole, hard work, always has been.  what you, like so many of the youth today fail to realize is that there is a difference between receiving a degree and earning a degree or a position in the productive workforce for that matter.

Moreover, many of you food stamp recipients have made numerous concious decisions to have a lot of children, you don't have to be "educated" to understand that having more children when you can not feed yourself is fucking stupid, now you want someone to "save" you and your children - see rule #1.

Fri, 02/17/2012 - 13:29 | 2170227 Comay Mierda
Comay Mierda's picture

even 2nd graders can understand that more money printed = less valuable currency. all these idiot phd's that are so busy with this mental masturbation of creating "scholarly reports" on interest rates/unemployment/targeting gdp fail to understand this and actually believe in the bullshit government data. who are the idiots here fed fuckers?

Fri, 02/17/2012 - 13:50 | 2170364 killallthefiat
killallthefiat's picture

I agree.  My second grader totally understands the function of the gov't/fed.  They print money and it gets worth less and less.  I even printed out some dollars on the laserjet and had 100 copies come out. (B&W and overly large, of course.)  She asked why we could not do this in the correct size and color.  Out of the mouths of babes...

Fri, 02/17/2012 - 14:21 | 2170579 Non Passaran
Fri, 02/17/2012 - 13:39 | 2170255 Azannoth
Azannoth's picture

The best empirical proof that people don't understand monetary policy is that we didn't have a Revolution yet

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford

Fri, 02/17/2012 - 14:10 | 2170493 xela2200
xela2200's picture

I pledge Allegiance to the flag of the United States of America and ...

Wait wait


Got it. Sorry, the mind control programing kicked in for a sec.

Fri, 02/17/2012 - 14:45 | 2170686 nostromo17
nostromo17's picture

You got that right.

Fri, 02/17/2012 - 13:36 | 2170280 V in PA
V in PA's picture

Improving the public’s understanding of the central bank’s policy strategy reduces economic and financial uncertainty


In other words... The sheep need to be brainwashed a little more, and then the FED policy will work.

Since the less educated are part of the financial equation, wouldn't including their ignorance into the model make for a better model?

Fri, 02/17/2012 - 13:44 | 2170305 Azannoth
Azannoth's picture

The Church has been doing exactly this (quite successfully at that) for the past 2000 years, I guess the bankers are a little envious of that because after all they too are doing God's work

Fri, 02/17/2012 - 13:51 | 2170379 fonestar
fonestar's picture

I would like to form a think tank composed of GED recipients and high school drop outs to find out if Federal Reserve board members understand monetary policy.

Fri, 02/17/2012 - 14:25 | 2170602 johnQpublic
johnQpublic's picture

i thought the first rule of fight club is that we dont talk about fight club


Fri, 02/17/2012 - 14:39 | 2170652 Clayton Bigsby
Clayton Bigsby's picture

Was thinking exactly that - are my tax dollars really supporting this?

Fri, 02/17/2012 - 14:52 | 2170732 Island_Dweller
Island_Dweller's picture

First bloggers and now those with only a high school edumacation.......

Anyone else remember this one?:

Bottom line: We're not smart enough to play a role in the economy.

Sat, 02/18/2012 - 11:56 | 2172829 Eireann go Brach
Eireann go Brach's picture

Once I seen who wrote this??... 2 fucking Mexicans??. Go back to the fields and count the berries you picked!

Fri, 02/17/2012 - 13:21 | 2170187 JPM Hater001
JPM Hater001's picture

I have been asked not to comment on this...

Fri, 02/17/2012 - 13:22 | 2170196 DaveyJones
DaveyJones's picture

if people INSIDE the Fed don't understand monetary policy, why should people OUTSIDE?

Fri, 02/17/2012 - 13:52 | 2170357 dwdollar
dwdollar's picture

Let's boil this down.

The FED (which has unlimited funds) funds studies which suggest only an elite minority understand monetary policy therefore "proving" the necessity of said FED to be controlled by said elite minority for the "betterment" of all.


Fri, 02/17/2012 - 17:18 | 2171394 Theosebes Goodfellow
Theosebes Goodfellow's picture

Wait! Wait! Wait! I wanna' play too, DWDollar! Let's see, boiling..., boiling...

#1: real asset-based currency = good.

#2: debt-based currency = bad.

#3: Borrowing currency = bad.

#4: Lending currency = good, but get real asset collateral.

#5: Printing debt-based currency = bad.

#6: Manipulating interest rates of over-printed debt-based currency = bad.

But of course, I, as a guy who simply got a GED, can't possibly understand monetary policy....

/sarc off


Fri, 02/17/2012 - 13:23 | 2170197 GeneMarchbanks
GeneMarchbanks's picture


I'm not. Basically we're now at the point where 'it's not us, it's you!' is being deployed because the clusterfuck is beyond saving.

Money is a minds construct. It could essentially be anything or nothing. FIAT seems absurd without faith doesn't it?

Fri, 02/17/2012 - 13:23 | 2170201 Confused
Confused's picture

100% correct. Its obvious in everything "they" do. Surprising? Not in the least. But it is fucking annoying.

Fri, 02/17/2012 - 13:23 | 2170203 LawsofPhysics
LawsofPhysics's picture

"FIAT seems absurd without faith doesn't it?"


Fri, 02/17/2012 - 14:42 | 2170670 nostromo17
nostromo17's picture

or delusions without faith?

Fri, 02/17/2012 - 15:25 | 2170895 LawsofPhysics
LawsofPhysics's picture

pick up a history book and tell us all how that turns out, over and over. No delusions here.

Fri, 02/17/2012 - 14:03 | 2170436 DaveyJones
DaveyJones's picture

post of the week award

Fri, 02/17/2012 - 13:22 | 2170198 dexter_morgan
dexter_morgan's picture

What a waste of time, money, energy.

Fri, 02/17/2012 - 13:39 | 2170292 V in PA
V in PA's picture

Mission Accomplished!

Fri, 02/17/2012 - 13:56 | 2170398 francis_sawyer
francis_sawyer's picture

If they have that much time on their hands, I wish they'd just go back to surfing for midget tranny porn on the web...

Fri, 02/17/2012 - 13:24 | 2170202 dwdollar
dwdollar's picture

I don't understand the relationship between unicorns and pixie dust. Does that make me a fool also?

Fri, 02/17/2012 - 13:25 | 2170208 VelvetHog
VelvetHog's picture

What was the question again?

Fri, 02/17/2012 - 13:26 | 2170216 dwdollar
dwdollar's picture

This reminds me of a professor laughing at a student who asks a valid question which the professor can't answer.

Fri, 02/17/2012 - 13:56 | 2170239 pods
pods's picture

I asked one of those talking about p-orbitals. An electron can be here or here, but not in between.

So I asked if it can be here or there but not in between, how does it get from here or there?


"Can't ask that question."


Fri, 02/17/2012 - 14:41 | 2170657 nostromo17
nostromo17's picture

Not funny.

Fri, 02/17/2012 - 16:23 | 2171165 Willzyx
Willzyx's picture

Thats quantum mechanics for you.  It doesn't produce definative black and white answers, but but accurate and replicatable probability distributions.  Even the greatest minds in quantum mechanics don't fully understand it and can't answer seamingly simple questions like yours.  Einstein sat on the sidelines of the quantum revolution.  It's theories played no role in his later works.

Fri, 02/17/2012 - 14:43 | 2170673 nostromo17
nostromo17's picture

Its far worse.

Fri, 02/17/2012 - 13:26 | 2170218 Coffin Dodger
Coffin Dodger's picture


Fri, 02/17/2012 - 14:51 | 2170727 nostromo17
nostromo17's picture

destructive useless cunts

Fri, 02/17/2012 - 13:27 | 2170220 AccreditedEYE
AccreditedEYE's picture

Disgusting....and will probably be used as more ammo in the war for Central Planning.

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