April 9, 2011
Reining the Independent Fed
Sean Fielder and Jeffrey Bell of the American Principles Project wrote last week in the Wall Street Journal that the Federal Reserve is too independent--but not too independent from the President (a conlawprof's usual worry), rather too independent from Congress. (Thanks to Jon Gutek for the tip.)
Fielder and Bell argue that the Fed's problematic independence arose when we abandoned the gold standard (in favor of mere "statutory supervision" of the Fed). They explain:
Statutory supervision of government bureaucracies is usually workable because Congress maintains the power of the purse. But the Fed, which can print money, has no budget constraint. Its profit and loss statement doesn't matter because, unlike every other legal entity, its liabilities are irredeemable. Not having a real budget means that the Fed doesn't have to compete with anyone for scarce resources.
Their answer is to bring back the gold standard, or at least to let gold compete with federal reserve notes.
The argument in places like Utah--which has moved to legalize gold and silver as legal currency in the state--is that gold and silver will crowd out devaluing federal reserve notes, because people, businesses, and banks will see that gold and silver, unlike fed notes, hold their value. Fielder and Bell say that this competition will "concentrate the minds of the Federal Reserve Board on keeping inflation under control."
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