The Federal Reserve’s mandate is price stability and maximum employment. Its analytical frameworks are built around those objectives. The models it uses — rooted in neoclassical price theory — are sophisticated, data-rich, and largely blind to what has been happening to America’s industrial base for the past twenty-five years.
Craig Tindale makes a pointed observation: when a smelter closes, the FOMC’s theoretical framework predicts that demand will eventually reopen it. Price signals will attract new investment. Supply will respond to demand. The market will clear.
What the model doesn’t account for is irreversibility. When a smelter closes, it isn’t mothballed in a state of readiness. The workforce disperses. The operators retire or retrain. The institutional knowledge — the accumulated understanding of how to run that specific process safely and efficiently — evaporates. The physical plant corrodes. The supplier relationships dissolve. The safety culture disappears.
You cannot restart that smelter when demand returns by cutting a check. You have to rebuild it from scratch, which takes years, costs multiples of what the original facility was worth, and requires a human capital base that no longer exists in the relevant region. The market signal that was supposed to trigger reopening arrives to find nothing capable of responding to it.
This is the deindustrialization blind spot. And it has significant monetary policy implications that the FOMC hasn’t incorporated.
When Quantitative Easing suppresses long-term interest rates, it preferentially inflates financial assets — equities, real estate, credit instruments. It does not preferentially fund industrial projects with 15-20 year payback periods and high capital intensity. In fact, it actively disadvantages them relative to financial engineering plays that generate returns in quarters rather than decades.
Tindale notes that Kevin Warsh — a former Fed governor — has been one of the few voices arguing that QE is structurally anti-industrial: it channels capital toward short-duration yield assets and away from the long-duration real investment that rebuilds productive capacity. That argument has not yet penetrated the consensus framework. Until it does, monetary policy will continue to accelerate the deindustrialization it claims not to see.
The Hedge 