Is the Fed's independence (de facto, not de jure) "undemocratic"? Somewhat. So what? America is committed to democracy — and to circumscribing democracy's scope in order to minimize the damage it can do by improvident responsiveness to untempered gusts of public passion. Thus the government is replete with restraining mechanisms — three branches of government, rival chambers of the legislative branch, vetoes, supermajority requirements, judicial review, etc. And there are extra-constitutional circumscriptions of democracy, such as allowing the Fed an independence that exists at the sufferance of Congress. If Time magazine has a lick of sense, Bernanke will be its Person of the Year because his leading role in stabilizing the financial system enabled the president to pursue other objectives. He did not do it perfectly, but he prevented paralysis. … Like the Fed, dentists are always important and urgently desired when pain is intense. But they are rarely objects of their patients' affections. – Washington Post
Dominant Social Theme: The Fed is misunderstood.
Free-Market Analysis: One of our Feedbacker emailed us and brought this article to our attention and we're glad he did. George Will asks in this article why libertarian Congressman Ron Paul (R-Tex) is trying to audit the Fed when it's doing a pretty darn good job. We ask in turn if this article is the end of ole George Will (at least as a quasi-credible, conservative columnist).
There are a whole slew of older "wise journalists" that the Washington Post and some other esteemed mainstream media keep on the shelf like inter-changeable bobble-head dolls (David Broder is another one that comes to mind). It is the job of these individuals to write really logical and fair-minded articles defending what some might consider to be fairly ludicrous policies – in such a way that one will nod one's (presumably) empty head, finally, and say, "yes, you know it is logical that we did [this or that outrageous thing] – our national security [or whatever] demanded it."
But this time we think George Will has gone over the top. He has not, for some reason, fulfilled his mandate. He is jeopardizing the hard-won credibility that he has amassed by wearing bow-ties for umpteen decades, writing dozens of boring articles about baseball and thousands of "conservative" articles that are really, in full, an apologia for American imperialism. This is most unlike him. What has happened to the writer whose talent is singularly the ability to write so wittily about so little?
We think he is grievously misreading the national mood, and that his defense of the Fed comes across as strangely tone-deaf. We might suggest, therefore, that a little birdy might have tweeted in his ear that such a column would be a good idea. But as the publication that suggested early this year (before any other) that the Federal Reserve was in a good deal of trouble, we would like to suggest modestly that this column will provide George Will with some difficulties of his own as well. He might well be doing his apparent friend Ben Bernanke a "solid" as Tiger Woods would say. But in doing so, it seems he went over the top. Ben Bernanke as Time Magazine man-of-the-year?
Here's some more from the article:
And at Rep. Ron Paul, the 2008 presidential candidate who had the zany idea — as many laughing people thought — that the Federal Reserve system could become a sizzling political issue. Ben Bernanke, chairman of the Fed, who does not laugh promiscuously, knows that it is no laughing matter that Paul has 317 co-sponsors (180 Republicans, 137 Democrats) for a bill to open the Fed's books to "audit" by the comptroller general.
The canny congressman cannot accomplish what the title of his best-selling book recommends: "End the Fed." But he probably hopes that if the Fed's transactions with financial institutions were publicized, he and kindred spirits could stir populist resentment of the mysterious institution. Although profoundly mistaken in his objective — breaking the Fed to Congress's saddle — Paul is not frivolous. His rage against the Fed is rooted in his rejection of fiat money — paper money backed by nothing but confidence in Congress (really), and his libertarian enthusiasm for maximizing the role of unmanaged markets in allocating social rewards.
Bernanke on Monday told the Economic Club of Washington that Congress already can examine the Fed's balance sheet. His worry is that Congress, by ordering audits when it dislikes Fed monetary policy decisions, might make the Fed seem subject to, and eventually actually make it subject to, congressional pressure.
We have long observed that the Fed's mandate basically amounts to fixing the price and quantity of money (dollars) in circulation – and that price fixing never works. Which is why we get such tremendous booms and busts. The Fed is draining what is left in the American economy and yet with other central banks, it is the lynchpin – the golden goose – of power elite promotions. We wouldn't mind seeing it gone. We think it is a big deal that it is "un-democratic" (in a republican sense) even though George Will seems to think this is a minor point. We think what's really got Bernanke spooked is the idea that Ron Paul's bill will carry at some level and that he, Bernanke, will not get reappointed. What would come out then, would be the stuff of Ben's nightmares, were he not around to run interference against such a dreaded audit. Will didn't mention that, though.