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E-mailPlaying politics with the Fed
George F. Will is a columnist for The Washington Post and Newsweek. He can be reached via e-mail.
They all laughed at Fulton and his steamboat,
Hershey and his chocolate bar ...
-- George Gershwin
WASHINGTON
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, 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.
Paul's 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 eventually make the Fed subject to congressional pressure.
At Bernanke's recent confirmation hearing on his nomination for a second term, Jim DeMint, a South Carolina Republican who is co-sponsoring a Senate version of Paul's bill, asked Bernanke: "Do you believe that employment should be a mission, a goal of the Federal Reserve?"
Bernanke, who had already noted Congress' "mandate" that the Fed "achieve maximum employment and price stability," answered that the Fed "can assist keeping employment close to its maximum level through adroit policies."
That mandate was, however, improvidently given. Congress can control the Fed and eventually will do so if the Fed eagerly embraces the role of the economy's comprehensive manager. America's complex, dynamic economy cannot be both "managed" and efficient. Attempting to manage it is an inherently political undertaking and if the Fed undertakes it, the Fed will eventually bring upon itself minute supervision by Congress.
Rep. Paul Ryan, R-Wis., has a better idea: Repeal the Humphrey-Hawkins Full Employment Act of 1978 that, he says, "dangerously diverted the Fed from its most important job: price stability."
For 65 years after its creation in 1913, the Fed's principal duty was to preserve the currency as a store of value by preventing inflation from undermining price stability. Humphrey-Hawkins gave it the second duty of superintending economic growth.
Bernanke's leading role in stabilizing the financial system enabled the president to pursue other objectives. He did not do it perfectly, but he prevented paralysis.
On Monday, he reminded his Economic Club listeners of John Maynard Keynes' words that "economists could manage to get themselves thought of as humble, competent people on a level with dentists." But humble people do not claim -- as Bernanke does, under Congress' mandate -- the competence to simultaneously produce, with "adroit" policies, price stability and full employment.
Like the Fed, dentists are always important and urgently desired when pain is intense. But they are rarely objects of their patients' affections.
