So I was chatting with neighbor the other night who was of he opinion that the Federal Reserve should be abolished. This guy is pretty well to the left of me so it was surprising to see him espousing a position more in line with Ron Paul and the "hard money" gold bugs. I also noticed an "End the Fed" sign being waved at the Occupy Wall Street protests in New York.
What is it about the Fed that elicits such suspicion from both the left and right? The Mystery surrounding its machinations probably has something to do with it. The right sees it as an engine of 'easy money' inflation and symbolic of government meddling with the markets; the left sees it as a proxy for the power of big banks over the will of the people. 97% of the population doesn't understand all that much about it, and this seems partly by design. Fed governors are appointed by the President and confirmed by the senate, but their terms span 3.5 presidential terms.
This "fourth branch" of government has no specific place carved out for it in the Constitution. In fact the Constitution is generally vague or mute on economic and banking matters. Certain founding fathers, notably Thomas Jefferson, were highly suspicious of the notion of central banks even in principle. I'm curious what others think.
The very idea of abolishing the FED amazes me. As you pointed out earlier, the 1900’s was a economic mess with wild fluctuations in the marketplace. The FED as created in 1913 and modified in the 30’s had a meaningful purpose in modifying these wild swings in the market and provide stability. And it has worked for the most part.
ReplyDeletePerhaps the best argument for the FED is looking at what is going on in Europe where the adopted a common currency but NOT a common bank and now they are suffering because of that. At least that is part of their problem as I see it.
Free market systems need external controls or they get out of control. The FED has been an important part of that control in our economy. To get rid of the FED would just make our problems so much worse than they are it is inconceivable to me.
I know folk don’t seem to understand the FED very well, but when I taught about it in a high school economics class in the 1960’s they did not seem to have any difficulty understanding it.
Perhaps part of the misunderstanding of the FED comes from an allusion that we have a free market system rather than a mixed economy. The discussion really has to do with the amount and type of government control is necessary for a vibrant economy.
With any historical knowledge we know the free market systems quickly get out of control and mixed economies do better for all involved.
I plan a future piece on what citizens of a country, this country, should expect as being citizens. A big part of that discussion will have to deal with the controls necessary to insure our expectations.