Delete the Fed

By:  Sheldon Richman
08/22/2013
       
Delete the Fed

The question is who will run the Federal Reserve System when Chairman Ben Bernanke’s term expires next year?

Who should run the Federal Reserve System when Chairman Ben Bernanke’s term expires next year: Vice Chair Janet Yellen or former Obama adviser Lawrence Summers?

Neither.

Who then?

No one.

The fact is, we need the Federal Reserve like we need a hole in the head. Contrary to folklore, the Fed is not needed to stabilize the economy or to prevent unemployment. As the Fed heads into its second century, we ought to realize that its record is terrible. Even if we don’t count the interwar period (which some economists call the new Fed's practice round), America’s central bank is a flop. Monetary economists George A. Selgin, William D. Lastrapes, and Lawrence H. White wrote in “Has the Fed Been a Failure?”:

Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I.

The authors support that generalization with details. On inflation: “Far from achieving long-run price stability, [the Fed] has allowed the purchasing power of the U.S. dollar, which was hardly different on the eve of the Fed‘s creation from what it had been at the time of the dollar’s establishment as the official U.S. monetary unit, to fall dramatically” — by 95 percent.

Selgin, Lastrapes, and White also show that the central bank has given us longer recessions and slower recoveries.

But without the Fed, who would set interest rates to guide the economy? The first answer is that government policy and Fed manipulations can create the very recessions that the Fed then tries to reverse. If the politicians and their court economists would get over their hubristic belief that they are stewards of the economy, macroeconomic crises would disappear.

Click here to read the entire article.

The JBS Weekly Member Update offers activism tips, new educational tools, upcoming events, and JBS perspective. Every Monday this e-newsletter will keep you informed on current action projects and offer insight into news events you won't hear from the mainstream media.
JBS Facebook JBS Twitter JBS YouTube JBS RSS Feed