I’ll be the first to admit that I don’t have a particularly good grasp on the complex and recondite issues surrounding the Fed and monetary policy, but William Greider (who literally wrote the book on the Fed) lays out the case for making it more accountable and transparent in the latest Nation. Crucially, he says that a suitably reformed Fed should be in charge–with congressional oversight–of monetary policy, but the authority for enforcing regulation of banks and other financial institutions should be vested with a separate agency, to avoid some of the conflicts of interest that helped bring about our current woes.
"Man is but a reed, the most feeble thing in nature, but he is a thinking reed" – Blaise Pascal
2 responses to “Democratizing the Fed”
-
Democratizing the Fed would come with its own set of issues. There is a long-standing study on Central Banks around the world that found the more independent a central bank is, the better job they are able to do controlling inflation. Additionally, Congress (particularly the party in the majority), if it had power over the Fed would be able to inject money in the system a couple of quarters before election season, stimulating the short-term economy, preserving their seats and majority to the detriment of the long-term economy. The separation of monetary policy from banking regulation does seem like a no-brainer.
-
Thanks for weighing in! What do you make of Greider’s suggestion to create a monetary analogue of the CBO to provide more objective, fact-based guidiance to Congress on monetary policy as well as committees who develop with expertise on monetary policy?
I’d be interested in reading more on how other countries manage this kind of institutional balancing act.
A Thinking Reed 
Leave a reply to Lee Cancel reply