Federal Reserve Board Abolition Act, H.R. 833
Former presidential candidate and part-time Republican wing nut, Ron Paul, recently proffered legislation to eliminate the Federal Reserve. Paul believes that since its creation in 1913 the Fed has been responsible for a boom-and-bust monetary policy that has caused every economic downturn in the ensuing century.
Paul postulates that "abolishing the Federal Reserve will allow Congress to "reassert its constitutional authority over monetary policy." If you didn't fully grasp the previous sentence, read it again. That's right, he wants Congress to control monetary policy! Wouldn't that be special? Imagine partisan windbags on both sides of the isle grappling over the money supply and interest rate policy. Can you think of a faster path to economic ruin?
Like all politicians with an agenda, Paul cherry-picks the facts. The Fed does have a spotty record over the past 96 years or so. What Paul neglects to point out, however, is that for much of its history, Fed independence was largely a myth. It was dominated directly and indirectly by the Executive branch. In fact, for years, the Federal Reserve Board actually included administration officials (Treasury secretary and Comptroller of the Currency). Although taboo in recent decades, past Presidents were quick to pressure the Fed to act in accordance with administration objectives.
Moreover, for years, the Fed was hamstrung by flawed economic theory. It wasn't until Milton Friedman's breakthrough work that inflation was understood to be "always and everywhere a monetary phenomenon."
Since the Fed has achieved ostensible independence, and become cognizant of the key inflation driver, it has been much better equipped to manage our economy's vicissitudes. As a result, downturns have generally been shorter and more shallow.
If President Carter's catastrophic fiscal policies weren't enough, envisage the additional carnage that would have resulted if Fed head, Paul Volcker, wasn't empowered to administer the right monetary medicine. Any chance that Congress would have had the courage to allow interest rates to skyrocket, thereby tamping down business investment and spiking unemployment, in order to choke off inflation? I think the answer to that question is pretty clear.
Sure, we've had to endure a Greenspan-induced bubble or two, but does anybody seriously believe that is worse than if Congress were in charge—not withstanding the swell job they're doing right now with the stimulus package?
Paul postulates that "abolishing the Federal Reserve will allow Congress to "reassert its constitutional authority over monetary policy." If you didn't fully grasp the previous sentence, read it again. That's right, he wants Congress to control monetary policy! Wouldn't that be special? Imagine partisan windbags on both sides of the isle grappling over the money supply and interest rate policy. Can you think of a faster path to economic ruin?
Like all politicians with an agenda, Paul cherry-picks the facts. The Fed does have a spotty record over the past 96 years or so. What Paul neglects to point out, however, is that for much of its history, Fed independence was largely a myth. It was dominated directly and indirectly by the Executive branch. In fact, for years, the Federal Reserve Board actually included administration officials (Treasury secretary and Comptroller of the Currency). Although taboo in recent decades, past Presidents were quick to pressure the Fed to act in accordance with administration objectives.
Moreover, for years, the Fed was hamstrung by flawed economic theory. It wasn't until Milton Friedman's breakthrough work that inflation was understood to be "always and everywhere a monetary phenomenon."
Since the Fed has achieved ostensible independence, and become cognizant of the key inflation driver, it has been much better equipped to manage our economy's vicissitudes. As a result, downturns have generally been shorter and more shallow.
If President Carter's catastrophic fiscal policies weren't enough, envisage the additional carnage that would have resulted if Fed head, Paul Volcker, wasn't empowered to administer the right monetary medicine. Any chance that Congress would have had the courage to allow interest rates to skyrocket, thereby tamping down business investment and spiking unemployment, in order to choke off inflation? I think the answer to that question is pretty clear.
Sure, we've had to endure a Greenspan-induced bubble or two, but does anybody seriously believe that is worse than if Congress were in charge—not withstanding the swell job they're doing right now with the stimulus package?
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