It's About Time We Politicized the Fed
Monetary policy deserves public scrutiny.
Monetary policy is a complex and mystical business—yet it was not, as far as I know, handed down from God to Moses to Alan Greenspan.
But in case you forgot, "it is very important to keep politics out of monetary policy," the partisan political appointee Timothy Geithner recently explained in an interview with Bloomberg Television. "You want to be very careful not to take steps that hurt our credibility."
No doubt, because of scarcity, Geithner has developed a profound appreciation for credibility. He is, after all, one of the architects of our "stimulus" infrastructure and a supporter of a monetary policy that managed to unite the entire industrial world against the United States at the recent G-20 meetings.
"U.S. leadership, once taken for granted, has all but vanished, and no one's in charge," wrote the editorial board of not the National Review, but the San Francisco Chronicle.
Political or not, perhaps we've allowed the power of the Federal Reserve System to go unchallenged for too long. Perhaps we've given too much deference to gurus who speak in Fiscal Koans rather than English and hover above human fallibility, oversight, and transparency. Maybe it's time to start thinking about re-examining its role.
Especially now that the Fed has begun a second round of "quantitative easing"—colloquially known as QE2, or "printing a load of money and giving it to big banks." It will drop another $600 billion into the economy even though the first round of more than $1 trillion failed to do much of anything. In fact, more than $3 trillion has been thrown into the economic mix since we started fixing the recession.
Many economists argue that this kind of policy has the potential to feed economic bubbles, distort trade, push nations to engage in competing devaluations, cause long-term inflation at home, and transform your dollar into something … well, less.
Now, I'm in no position to offer any definitive statements on quantitative easing. But for argument's sake, let's imagine momentarily that Fed Chairman Ben Bernanke has lost his marbles.
Why are these kinds of far-reaching decisions regarding our economic future immune from political debate and legitimate public scrutiny? In no other sphere of public policymaking is anyone as inoculated from accountability or the normal vagaries of a changing world.
When a number of respected economists and politicians laid out substantive economic concerns about QE2, Bernanke could hardly take the time to explain his actions; and why should he?
Another letter from two dozen experts—including Douglas Holtz-Eakin, a former Congressional Budget Office director, and Stanford University professor John Taylor, the man who designed a monetary-policy formula on interest rates used by the Fed—laying out concerns went ignored.
If these concerns had been simply political posturing, it would have been one thing, but CNN reported that even behind closed doors, Fed policymakers had "contentious" arguments about what they saw as a "controversial" plan.
Yet in this cloistered world, at least one of those with objections and skepticism about the Fed's policy and its ability to boost the economy voted with Bernanke in the name of institutional solidarity.
That sounds pretty "political" to me.
Now, the argument for Fed autonomy is based on the importance of monetary stability. But to the columnist, it seems that the Fed is causing more unease, unpredictability, and concern among investors and citizens than ever. Once the Fed instigates volatility, doesn't the argument against political intervention dissipate?
Politics—however ugly and despicable it gets—is the best way for us to sift through these concerns. If politics is good enough to decide war, health care and education policy, it's good enough for the Fed.
David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his website at www.DavidHarsanyi.com.
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