Everybody Wants to End the Fed

    Whether on the Left or Right it is not hard to find someone who hates the Fed and thinks it should be abolished. The reasoning is different for Left and Right. For the Right it's that the Fed represents egregious government intervention into the monetary system of the economy.

    The Left sees it more of a creature of the banks. But everyone on some level seems to want it abolished. Even Alan Greenspan in his 2007 "Age of Turbulence" seemed to imply this as he waxed nostalgically of the old gold standard. Think about that-Mr. Federal Reserve himself, in his own Panglossian world would prefer there by no Fed.

    While Sumner's NGDP has been the happening thing lately on some level it was at least initially devised with a view towards limiting if not ending Fed intervention in the economy-it is still another attempt at Friedman's "rule" that the Fed can be run on-in my view as I understand it NGDP would be an improvement over the current Taylor Rule-which is wholly biased against full employment.

   Friedman liked the idea of a rule as it would be employed more automatically with as little Fed discretion as possible, in other words Friedman's Policy Rule would he thought enable the economy to at least mimic the appearance of pure Laissez Faire as possible.

   Of course Ron Paul who continues to poll pretty well in the laugh riot that is this year's Republican presidential primary is famous for opposing the Fed and has written a book called aptly enough, "End the Fed."

  So nobody seems to see the Fed as a good thing in itself-MMT theory which I have recently been interested seems to imply-many MMTers seem to feel this way though it's true you don't have to want the Fed abolished to be an MMTer.

  Their point seems to be that due to the relationship between the Fed and Treasury-they are more or less the same entity any way and merely shuffle paper between themselves, the Fed would be better being dissolved into the Treasury where it would have more political accountability.

  I however will go out on a limb and argue that the Fed should not be eliminated. Let's start with the fact that since the Federal Reserve Act was passed in 1913 we have seen a much better economic and monetary performance with much greater stability. In the 40 years of Greenspan's gold standard prior to 1913 we saw 20 out of the 40 years were recessionary years. Bank runs were a normal part of the financial landscape.

  The Fed has provided stability. I agree with the argument that it has been the object of some significant level of regulatory capture. That is a problem but better solved by the kinds of ideas Barney Frank has put forward-make the seven board governors appointed by the President and confirmed by the Senate.

  We don't need to eliminated the Fed but what we do have to eliminate is the ideology of Fed "independence." This is the site of regulatory capture.