PhillyDeals: Conservatives criticize Fed's bid to fight unemployment

The Free Library's value is cited in a new study by Penn researchers. Above, students reading in the Charles L. Durham Free Library in 2008.
The Free Library's value is cited in a new study by Penn researchers. Above, students reading in the Charles L. Durham Free Library in 2008.
Posted: November 18, 2010

Congress long ago gave the Federal Reserve, the nation's central bank, two missions: fight price inflation, and keep Americans working.

Conservative economists think that's one mission too many.

Monetarists such as Charles I. Plosser, chosen as president of the Federal Reserve Bank of Philadelphia by the small-town bankers, factory managers, and nonprofit agency bosses who sit on its board, say the Fed hasn't been effective when it tries to fight unemployment with cheap money.

Plosser and his allies argue that the most the Fed can expect to accomplish, over time, is to help control bond yields and price levels by influencing interest rates. When prices are stable, the economy grows steadily and jobs appear, they say.

Fed Chairman Ben S. Bernanke, despite his record as henchman to his discredited predecessor, limited-government advocate Alan Greenspan, has lately been trying to do more to help restart the stalled U.S. economy. He has ordered the Fed to buy more U.S. government debt, which is supposed to boost the money supply and encourage banks to lend more to U.S. businesses.

How's that working? Cheap U.S. money has fueled $600 billion in borrowing so far this year - by foreign companies investing the money in China and elsewhere, Bloomberg L.P. reports. U.S. companies have raised an additional $1 trillion, but much of that is also going into foreign investments, by companies such as Wal-Mart Stores Inc., leaving 25 million Americans out of work or underemployed.

The Republicans elected to Congress for the first time this month include some Fed critics, such as Sen.-elect Rand Paul (R., Ky.), who broadly oppose Bernanke's policy and the Fed's independence.

Plosser has been a persistent but respectful critic of Fed intervention. With criticism of the Fed growing, is he preparing to raise his profile as a Bernanke critic? He's planning a speech Thursday afternoon at the libertarian Cato Institute in Washington, titled "Bubble, Bubble, Toil and Trouble: A Dangerous Brew for Monetary Policy." Plosser will rotate onto the Fed's top board as a voting member early next year.

Read and count

As Moody's Investors Service tightened the screws Wednesday on Philadelphia by cutting the city's credit rating, the Free Library published a study by the University of Pennsylvania's Fels Institute and its Institute for Urban Research that tries to give economic justification for the $30 million in city funds, and $10 million in state funds, that keep its 54 branches open in this online era.

Fels' David Thornburgh told me the library provides "private value" to library users of $22 million in yearly literacy gains, $6 million in job-finding assistance (that leads to millions more in higher wages), and $4 million in "business development" for business owners.

How'd they get that? Thornburgh and his staff figured, for instance, that Philadelphians receive $99 in value every time a business owner logs on to a Free Library computer, plus $10.52 for every book, movie, or magazine a member checks out.

Sounds airy? This is more concrete: "Libraries are responsible for $698 million in home values in Philadelphia" and "an additional $18.5 million in property taxes to the City and School District each year." All of that "could be lost per year if all libraries were closed."

Those assertions are based on city records showing "homes within one-quarter mile of a Library branch are worth, on average, $9,630 more than homes more than one-quarter mile from a Library," according to the report.

Penn's Kevin Gillen, who did this part of the study, tells me he took into account the fact that "most of the libraries are in business corridor districts," where prices are relatively higher than elsewhere. In fact, libraries don't much boost property values in rich neighborhoods; the difference is biggest in "working-class to relatively lower-income neighborhoods," where libraries provide space for civic groups that boost the quality of life, he says.

Still, Gillen agrees it's "a correlation, not a causation."

If libraries really boost property values, have home values fallen where the city has shut branches? Gillen didn't measure that. Given the wide swings in Philadelphia house values in recent years, he said, "It became too complicated."

Contact Joseph N. DiStefano at 215-854-5194 or

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