Ideally, there should be no such thing as the Federal Reserve System. The Fed should not have been created in 1913, and should be disbanded right now. End the Fed! This organization is nothing more and nothing less than a central planning bureau for interest rates, employment, and inflation (of late, it has expanded its mandate to include climate change and social equity issues as well).
Evidently, we have not yet fully incorporated the lessons about central planning we should have learned as a society from the examples of East and West Germany, North and South Korea. These came as close to a controlled experiment as we are ever likely to find in all of economics, and yet we still continue our merry way in the direction of central planning.
The Fed is no more needed for a prosperous economy than a government bureau that controls the price of shoes, sugar, or spatulas. Come to think of it, that would be a good idea: let the Fed control those prices, which impact only a small part of the economy, and leave off its interference with the price level and interest rates, which are pervasive.
The Fed was supposed to protect the value of the US dollar. Some 96% of it has atrophied since its birth over a century ago. It was supposed to promote economic stability and fight unemployment. Great Depression, anyone?
Did the governors of the Fed lose a penny of their personal fortunes for committing these egregious mistakes over the years? Not a single cent. Says national treasure Thomas Sowell about situations of this sort: “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”
However, all of this is neither here nor there. The Fed will, in all likelihood, like it or not, be with us for the foreseeable future. The question before us, now, is: Should it retain its much-vaunted independence? Or should it fall under the supervision of the executive branch, of which it is a constitutional part? (Please do not tell me it is a private organization, completely separate from all three branches of government; you’ve heard of the expression “With friends like this, who needs enemies?” I say, in like manner: With “private” entities such as the Fed, who needs government?)
My answer to this question is a big fat clear and unequivocal NO! Its independence must be stopped in its tracks. Why?
Fed independence is blatantly undemocratic. All those who revere this system of government (not I, not I, but that is a separate question) are required by the mandates of pure logic to oppose Fed independence. That is due to the fact that under this system, the people are supposed to be ruled by whom? By themselves! That is, the goal is to give the average person a say in how he is ruled.
Now, of course, in the modern era, it would be impossible to make public policy on the basis of discussions at town meetings. Hence, we resort not to direct but to representative government; we elect politicians to do our bidding. At election time we render on them a thumbs-up or thumbs-down verdict. That is how we control them. That is how we all retain at least a vestige of sovereignty. But under Fed independence, we have no control whatsoever over our rulers pertaining to inflation, interest rates, unemployment, not even indirectly via elected officials. Yes, the President can appoint Fed governors when there is vacancy, but apart from that they do exactly as they please. He cannot fire any of them, at least not for failing to follow his policies, as Mr. Trump’s recent experience with Jerome Powell and Lisa Cook has demonstrated.
This is undemocratic. The President of the country and his political party will be judged on the basis of how well the economy functions—on which the Fed plays an outsize role. And yet he cannot compel them to follow his lead. It is as if the conductor of the orchestra were to be judged on the basis of how well his musicians performed, but he was not allowed to choose its members, nor to practice with them before the concert. Ditto for the football coach who cannot pick athletes for this team, not run drills for them before the big game.
The big game, though, is our economy: get the Fed off the field.
The post Fed Independence? was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.
