The head of the Fed says it should be apolitical. Good luck with that

US Outlook

Click to follow
The Independent Online

For Janet Yellen, the chair of the Federal Reserve, 2015 is going to be a very different and possibly very difficult year.

With Republicans taking charge of the House and the Senate, things are going to be a lot less friendly whenever she makes her periodic trips to Congress – at least if Tuesday and Wednesday this week were anything to go by.

It isn’t only a matter of facing a more hostile environment whenever she sits in front of a Republican-led committee. Republicans are hostile to Democrat appointees like Ms Yellen, and vice-versa. Senator Richard Shelby, now head of the Senate banking committee, actively campaigned against Ms Yellen’s appointment. She is also the first female to lead the Fed and he’s an old-fashioned Republican from the conservative southern state of Alabama so that’s hardly shocking either.

But worse than the prospect of facing hostile questions is the prospect of having to battle to maintain the independence of the Fed. Rand Paul, a Republican from Kentucky and a strong contender for the 2016 Republican presidential nomination, has introduced an “audit the Fed” Bill to Congress that could dramatically alter the central bank’s transparency, at least in policy-making terms.

Senator Paul has taken over the conspiracy theory approach to the Fed that his father Ron Paul carried in Congress for years – one that is mainly based on a fundamental misunderstanding of how the Fed actually works.

The Bill itself is a misnomer. The Fed is already audited in an accounting sense and always has been, and the details of those audits are easily available to the public. Giving Bills misleading names is a time-honoured political tactic, though; the point is to get people to think that the Fed isn’t audited at all.

What Senator Paul actually wants to audit is the process by which the central bank arrives at its decisions on monetary policy. In other words, he wants to sit in on meetings, presumably.

Luckily for the Bill’s supporters and unluckily for the rest of us, Senator Paul wasn’t there this week to question Ms Yellen. By doing so, he would probably have revealed his complete ignorance of the Fed and thus ended any debate all by himself.

As it happens, the thought of Senator Paul sitting in on a central bankers’ meeting, dishing out his wisdom on all matters economic, is so hilarious that part of me wants it to happen. Just so long as they invite cameras and microphones in too. It’s not going to happen, but in the meantime Ms Yellen is going to have a tough time of it even if the economic recovery continues.

Republicans are particularly upset with her because she made a speech in October in which she mentioned how much inequality, particularly inequality of opportunity, concerns her. Fair point, some might say, but by today’s Republican standards, that pretty much makes her a communist. For them, she has already politicised her post.

Never mind that free market guru turned laughing stock Alan Greenspan was perhaps the most political of all central bankers. Or that the conservative wing of the Supreme Court regularly make guest appearances at right-wing think-tanks and fundraisers. That’s just them exercising their right to free speech, right?

As Ms Yellen noted in her responses regarding “audit the Fed” on Tuesday, central banks always operate better when they remain independent from politics. She is absolutely correct. That doesn’t mean that the people who work in central banks, and who make policy decisions, should not have their own political beliefs. They are, for the most part, well-educated and thoughtful, so that would be an absurdly unrealistic expectation. What it does mean is that they should leave their politics at the door when they discuss monetary policy decisions. To bring politicians into the mix is a dreadful idea – one that Ms Yellen should and apparently will resist at all cost. She needs all the support she can get.

Where are the profits from YouTube and Skype?

Can YouTube ever succeed in reinventing itself as something other than somewhere to watch You’ve Been Framed highlights and grumpy cats? The video-sharing site has certainly failed to turn itself into HBO or Netflix and remains pigeon-holed as a clip- sharing site. It’s 10 years old this year, a veritable dinosaur in tech terms, and yet it is still apparently no closer to making the mega bucks Google expected when it paid $1.65bn for the business in 2006.

Although it rakes in something like $4bn (£2.6bn) in annual revenues, an investigation by The Wall Street Journal this week revealed that margins are being eaten up by development costs, hardware and a business model that just doesn’t seem able to make that final step into profit.

Would describing YouTube as a “bust” be harsh? Maybe, but if you pay that kind of money for a business that almost nine years later still isn’t earning you anything, I’d say it’s also fair. Which makes me puzzled as to why we hear so little from Microsoft about Skype. The internet phone company provides a great service, especially considering the standard connection is free. But it wasn’t free to Microsoft: in 2011 the then chief executive Steve Ballmer saw fit to pay $8.5bn for it, less than two years after eBay sold most of its stake based on a sub-$3bn valuation.

Considering Skype is even more ancient than YouTube (it’s 12 years old), you’d have been forgiven for thinking that by the time Microsoft shelled out that kind of dough, it would have been making money. But it’s still impossible to say if it is or isn’t. Microsoft buries Skype’s financials in Commercial Licensing, its largest division, which includes Windows operating systems and servers. Microsoft does not disclose individual unit contributions.

It is still busy pushing Skype – just this week it signalled that it would no longer support Facebook or Google chat on its Outlook service and that users should switch to Skype – a move that seems at best a little half-hearted.

By now YouTube and Skype should be making many millions for their respective owners, even if the idea that a business should actually make a profit seems almost quaint these days. But are they both busts? One is, the other just might be.

Everyone is equal on the internet - for now

New Federal Communications Commission rules enforcing net neutrality – the idea that internet service providers should disperse data at the same speed for everyone – were confirmed on Thursday and hailed as a victory for smaller companies and consumers.

The internet has been an incredible driver of innovation, although arguably not so much of growth. For most successful virtual winners, there’s a real life loser. Those who support maintaining the pace of innovation have won this battle, meaning that internet service providers cannot favour some customers more than others. The result is that a huge operation like Apple’s website is delivered to customers at the same speed as anyone else’s. It’s one of the main reasons why smaller start-ups have been able to challenge established businesses.

But don’t expect internet providers to take it lying down. They have plenty of political and business allies and I wouldn’t be surprised to see this fight get as far as the Supreme Court – a court that has proven itself time after time to be very firmly in the pockets of big business.

Comments