Fed-bashing is fun, and I do it frequently, but it's easy to get carried
away with it - to blame the central bank and its independence for problems
inherent in capitalism itself. Was the US economy closer to full
employment than now before the Fed's founding in 1913? Is Britain a better
place because the Bank of England is under government control? By taming
the wild swings of the bizcycle, you could argue that the Fed and its
siblins around the world have improved capitalism's performance both on
conventional measures and from a working-class point of view.
Fed-bashing also underestimates the power of markets to set interests
rates - often, the Fed moves the discount and federal funds rates in
response to market pressures rather than leading them. In many ways, the
Fed has been too indulgent, validating all manner of speculative
instruments (like LBOs to derivatives in recent history). and then bailing
out the hotshots when things go sour (Texas banks, the 1987 stock market
crash). Of course, this is another instance of socialism for the rich, but
it does complicate the picture of the Fed as black-hatted.
I'd like to here more from those who think a democratized Fed would make a
significant difference in the economy's performance. How would you cope
with the inevitable collapse in bond prices (and the zooming in long-term
rates) were Henry Gonzalez get a chance to appoint a few members to the
Board of Governors - or, heaven forfend, were the Dollars & Sense staff be
taken on en masse as economic advisers to the central bank. Would looser
policy make much more than a marginal difference? How would you cope with
capital flight and an investor strike? Would unemployment be 3% and real
wages be in a 2% yearly uptrend if there were other than white men at the
monetary helm?
Doug
Doug Henwood [[EMAIL PROTECTED]]
Left Business Observer
212-874-4020 (voice)
212-874-3137 (fax)
