Can the Fed be an exception? Can it justify remaining "hidebound"? I don't think so, especially when financial writers, governments, and Alan "Adverb" Greenspan themselves believe that "flexibility" is the philosopher's stone of today's hyper-capitalism (the more hyper, the more need for flexibility on everyone's part). But of course the Fed can't raise interest rates one day, lower them 10 days hence, and raise them once again one week later. That would be a little too hyper. So what does he do? Hint that he'll raise interest rates, which has something of the same effect as an actual increase; then hint that he may not; then that he will, ad naseum. This is brand new stuff, I think, as interests rates were flexible only downward through the 1990s.
But now with half the economists saying that csrs are spending too much, over their heads in debt, while the other half are saying that consumers need to spend still more to keep the world economic ship from sinking. With business confused re: adding inventories for another year of 4 percent growth or drawing down inventories. With foreign exchange markets unable to make up their mind: is the euro going too low or should it go lower, what with Italy about the fall off the deck? With new debates about the efficacy of fiscal policy (East Asia); of foreign exchange controls (Malaysia, etc.); of foreign direct investment that merely changes ownership from a Latin American or Asian to an American or European. Not to speak of a host of political questions (who pays for the Balkans? How long can bankers get away with forgiving only a small part of third world debt?) There are lots and lots of questions, but I'm being wordy again, doubtless some would say woody, too.
All this adds up to a/ a crisis defined precisely as a period in which no one knows or can know what will happen next, hence the flood of arguable evaluations of the economic situation; b/ less and less room for any policy to work in, monetary, interest rate, fiscal, foreign trade/foreign exchange, etc. - if only because globalization shuts down the number of policy variables available to each and every country. I mean, less room for policymakers to maneuver.
"Therefore, everyone must be ready or prepared to be flexible, because who knows which way the wind will blow, but not necessarily actually be flexible. I don't know if this is expressed exactly the way I want to be expressed, but it goes to Greenspan's inflationary use of adverbs and qualifiers of all kinds and dependent clauses; to his oracle-like modality of being, which says in effect: If you think you know what I'm saying, you might be wrong, or you might be right. Or what I'm saying may seem like it's true, or it may seem like I want it to be true." Subtext: "it's all sociology, so go ask one of them: I haven't the faintest idea whether there will more or less new entries into the LF; whether LF participation of women, retired, etc., within the existing LF will rise or fall; and certainly I have no idea whether or not business has learned new modes of organization and cooperation such that high tech systems and equipment can really pay off in terms of big productivity gains." The economist asking for a sociologist (just like years ago, the economist requested a political scientist and together they invented the idea of the "political business cycle"). Jim O'Connor
PS summer reading: Richard Powers, Gain, a novel and history of US capitalism