Janet Yellen Wants More 'Booms,' Which Are Part Of The Whole Problem In The First Place

Janet Yellen Wants More ‘Booms,’ Which Are Part Of The Whole Problem In The First Place

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WASHINGTON, DC - DECEMBER 13: Janet Yellen speaks during her last news conference as Federal Reserve Chair in December 13, 2017 in Washington, DC. (Photo by Alex Wong/Getty Images)

Good times: who doesn't love them? Maybe the people who don't get invited.

And that's the basic issue with former Federal Reserve chair Janet Yellen's advice on Friday that interest rates should remain low for a longer period so the economy can continue to expand. After a big downturn, that's what you want, right?

Yes and no.

Economists regularly talk of expansion and recession as the periods between peaks and troughs, depending on whether things are heading up or down. That sounds like an ocean wave that gently lifts and lowers everything in turn. Everything has a chance to stay in balance.

Our economy history is far from a calm seashore diversion. Instead, we experience rough storms of boom and bust. Things spiral up and then come crashing down in ways that capsize smaller craft, even if the large ones can weather conditions.

The Great Recession cost most everyone large sums in lost income and wealth. Except for the top 10% economic strata, which on the whole wound up far better than ever before.

Recent boom-and-bust cycles (and many from the past) have been the product of human greed, excessive risk, a cutback of protective regulation, and the assumption by executives that they could walk into new areas of business, particularly in finance, and have no problems.

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That last part came clear to me when speaking with a former insurance CEO a number of years back. He noted that every business has its own rhythms and rules. Without proper risk management, the chances of disaster run high. Many executives charge in, thinking that they are smart enough to understand areas where they have no experience. And look what happened ten years ago.

Virtually no one wanted to miss the gravy train, driving the boom and concentrating the gains. As I've seen over the decades, many executives take enormous chances and tell themselves, in a form of self-calming, when things that somehow they'll pull it out in the end. Like students cramming at a semester's end, thinking they can make up all they didn't do before.

Quite often, they can't. As capitalism's realities eventually knock on the door like an economic grim reaper, things get ugly. That is when the people at the top want a way out. A decade back, the pleading became massive bailouts followed by huge financial losses for most people and bonuses for bankers that grew over the last decade even as other things puttered along.

In Rolling Stone, Matt Taibbi has a good history refresher on how things blew apart and to what degree there were early warning signs that politicians, regulators, and industry officials ignored. Because who wanted the party to end?

Yellen is right in the sense that the vast majority of people weren't made whole. Not even those who were supposed to receive mortgage help — an additional facet of the entire travesty.

Another boom would create further economic activity. Would most people really profit from it? Probably not, when you consider that real median income in an apples-to-apples comparison, given government changes in methodology, dropped between 1999 and 2017 with wealth falling for most. If the vast majrority of the public couldn't do better in that boom, why expect additional ones would be kinder and gentler?

What we need is a different approach to economics and finance. Instead of systemic instability and massive risk, let's have systemic prudence and probity. Rather than obscure machinations and manipulations that explode because no one, including the bankers in charge, understand what's really happening because of the complexity, we should establish real transparency. That means seeing what things actually do, not saying, "Look, here's 30 pages of impenetrable formulas and algorithms, so you make your own risk decision." Or, more likely, "Sorry, that's proprietary and you'll have to take our word for it because of competitive concerns."

It means not allowing special interests to dismantle Dodd-Frank and consumer protections.

If you really want people's stomachs to stop churning, you have to direct them off the roller coaster and onto solid ground.

For that, we need politicians who put the interest of country and public ahead of party, campaign donors, and their own careers and desire for power. Which means, people have to vote and make their needs and desires known.

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