Saturday, February 21, 2004

Screw the Fed

Though it is rarely talked about, monetary policy has a tremendous impact on the economy. It is strange then that we allow an unelected body, whose members have long terms, the Federal Reserve, to have total control over it. I understand the logic of having an independent central bank, that it insulates policymaking from "politics", but that is a little crazy. I mean, if monetary policy is important enough to isolate from politics than almost everything else is, too. Why let elected officials draw up the federal budget when it can be done by a crack team of accounts, economists and other experts? The reason is because one of the main points of democracy is the ability for the people to punish or reward (mainly punish) members of the government. My allowing the fed to be independent, we are putting a huge amount of power in the hands of a very small group of people that does not reflect the general will. Those responsible for making important decisions ought to have to answer to the people, not just in a bi-annual meeting with congress, but at polls. I think that the Federal Reserve ought to be stripped of its autonomy and put under the direct control of the President. Some may argue that the President will use this power to their political advantage, which is true. Fortunately, this means that things will work both ways. The President's management of the economy can be evaluated by the voters and he can be held accountable. Besides, the Fed might not be all that apolitical in the first place. As Hesoid has noted, the Federal Reserve has conveniently cut interest rates when it was politically advantageous for Republican Presidents and raised them when it would be harmful for the Democrats. Furthermore, Allen Greenpsan is certainly a political man. He's a Randian at heart and I suspect has a rather libertarian outlook that is not shared by the majority of Americans. He has also consisently helped the Bush Administration push its economic agenda (tax cuts for the wealthy), then loudly complained about the consequences, deficits and demanded cuts to social programs in response. Rather than allow a political agendas to be advanced covertly under the cover of impartiality, we ought to put the Fed under the control of the President in the name of democracy and transparency.


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