http://www.forbes.com/
Extraordinary times require extraordinary actions. Nowhere is that more apparent than in the bold policy moves undertaken by the Federal Reserve over the past two years. The financial crisis forced the Fed to be aggressive and creative in its attempts to provide liquidity to credit markets that had frozen up. These were necessary steps, and mostly applauded.
But the very boldness of its actions has put the independence of the Fed at risk. Congress is now clamoring to audit the Fed, and some of the policy proposals currently under discussion at the Federal Reserve will only increase the threat to its independence.
Without independence, the political cycle would subject the central bank to political pressures that, in turn, would impart an inflationary bias to monetary policy.
On this view, politicians in a democratic society are short-sighted because they are driven by the need to win their next election. This is borne out by empirical evidence. A politically insulated central bank is more likely to be concerned with long-run objectives.A variant of the argument for central bank independence is that control of monetary policy is far too important to put in the hands of politicians. As a group, they have repeatedly demonstrated the lack of political will power to make difficult economic decisions. But now they want to assert control over the Fed. The bill, HR 1207, introduced by Sen. Bernie Sanders (who brought you the “Employ Americans First Act”) and Rep. Ron Paul, would assert greater control over the Fed. As Ron Paul writes on his Web site: “Auditing the Fed is only the first step towards exposing this antiquated insider-run creature to the powerful forces of free-market competition. Once there are viable alternatives to the monopolistic fiat dollar, the Federal Reserve will have to become honest and transparent if it wants to remain in business.”
Great! Obviously, monetary policy is so falling-off-a-log simple that your elected representatives can insert themselves via the demand for transparency into decisions of true complexity and subtlety. Why am I not feeling reassured?
I believe cy_cy says it all:
Quoth Cooley- “Without independence, the political cycle would subject the central bank to political pressures that, in turn, would impart an inflationary bias to monetary policy.”
Is this sentence for real? Perhaps you could summon a grad student to investigate the “inflationary bias” pre-Fed and post-Fed. (I realize you’re too busy.)
Since the Fed’s inception, the dollar has lost over 98% of its value. Before the Fed, the dollar would actually GAIN value as time passed (thanks to productivity gains.) Are you implying that the so-called “independent fed” should be patting itself on the back for (so far) preventing hyper inflation?
You clearly imply that Ron Paul wishes to bring transparency to monetary policy so that he himself can make macro monetary calls (manipulating interest rates, reserve rates, etc.) You imply that he is not qualified to be making these decisions. I am sure he would agree: his entire point is that no individual or small group can centrally determine interest rates.
The fact that you would so horribly misstate Paul’s monetary thesis suggests you either have not bothered to research his thesis (yet have the audacity to write an article about it anyway), or you do know what he is trying to say, but you grossly misconstrued his message so that you could shout it down. Either option is an overwhelming suggestion of both intellectual bankruptcy and, in light of your career choices as a writer and an educator, severe moral bankruptcy as well.
Tags: The Fed, HR 1207, Intellectual Cowardice
