…objectives of targeting inflation and unemployment. Fooled you, didn’t I?
I know it isn’t big news around libertarian circles that the Cato Institute is not libertarian, but every once in a while it is worth a concrete reminder. In a commentary penned by Gerald P. O'Driscoll Jr., he asks: 100 Years Later, Was the Federal Reserve a Good Idea?
Now a clue to the answer may be found in Gerald’s professional background:
Gerald P. O’Driscoll is a senior fellow at the Cato Institute, and was formerly a vice president at the Federal Reserve Bank of Dallas.
I understand we all had to come from somewhere; while we all might have been born libertarian, the years of abuse and brainwashing in the indoctrination centers known as schools specifically, and in the brain-numbing bombardment by the mainstream media generally have taken a toll on many. For most who find themselves in the libertarian camp, the journey was circuitous, unfortunately taking some for rides that, in hindsight, strayed from the good sense that God gave us at birth.
So maybe Gerald has returned to the wisdom that even a child possesses. Maybe.
With the Fed in its centennial year, Janet Yellen facing confirmation hearings in the Senate, and questions swirling over whether the Fed will enact “tapering,” many monetary scholars are asking: Was the Fed a good idea?
Certainly, a clear and direct “no” won’t do – what kind of commentary would that be? Over before it begins. So Gerald highlights some of the bungles – attempting to establish his cred with the free-market community, I guess:
Not since the Great Inflation of the early 1980s has the Fed been so controversial. Its causal role in the housing boom and bust remains contentious. Other factors aside, the Fed was a poor overseer of the safety and soundness of the financial system. At best, the central bank was a passive bystander during the boom and early stages of the housing bust; it couldn’t even accept that we were in the midst of nationwide housing downturn.
…a look at the Fed’s unenviable performance over the past one hundred years shows how clearly it’s needed. On its watch, America endured the Great Depression, the Great Inflation and the Great Recession. Even excluding the Great Depression, real output has been no more stable than in the pre-Fed era.
In fact, the years of monetary stability under the Fed have been comparatively few.
Superficial as it is, is this not enough evidence to convict?
Certainly, the Fed has made many mistakes, but the current era of big government precludes any near-term possibility of abolishing it, as some would hope.
I guess not.
However, it can be improved. At a minimum, the Fed needs to be much more rule-bound. Targeting nominal GDP (the dollar value of all goods and services produced in the United States, not adjusted for inflation) would be one such rule.
I think I am going to be sick.
GDP is not measurable. It is a nonsensical statistic given weight merely for the credibility it transmits to economists who enjoy the prestige that comes with influence government economic policy – meaning central planning.
There is little in the macro-economic world that can be measured. This doesn’t stop economists from measuring the immeasurable, and from offering advice based on these immeasurable measures. They are quacks.
…nominal GDP targeting lets the market determine the composition of output and price changes for a given rate of growth of nominal output.
Please, please, please – why not just let “the market determine the composition of” money and credit? Why insist on central planning on the single most important commodity to an advanced division-of-labor economy?
In many versions, nominal GDP growth is targeted at five percent annually, with the expectation that over the long run, real output will grow at a trend rate of three percent and prices at two percent on average.
Or price inflation (another immeasurable statistic) increasing at 10% and real output (another immeasurable statistic) shrinking by 5%?
Gerald throws a bone to the free market, again in an attempt, it seems, to establish his free market credentials:
Other scholars support free banking, or banking without a central bank trying to steer the economy, or a return to a gold or alternative commodity standard. These positions overlap, and taken together are perhaps the most viable alternative to central banking.
He sees that it may be possible, someday – some far-off day – to end the Fed.
The big question is whether the Fed has outlived its purpose and competitive banking and a commodity standard should take its place. There are no near-term prospects for ending the Fed. Longer term, it would a formidable but not impossible.
But for now, a different version of central planning is called for:
Whether that particular goal is achievable, fundamental monetary reform is a necessity.
Gerald seems firmly rooted in the “manage the Fed” camp. There are many pseudo-libertarians in this camp: Milton Friedman perhaps being the most famous.
The Cato Institute is a public policy research organization — a think tank – dedicated to the principles of individual liberty, limited government, free markets and peace
Dedicated to the principles of a free market? How about starting by calling for a free market in money? How about that?