Commentary
“A million workers working for nothing. You better give them what they really own,” John Lennon sang in “Power to the People.”
With a level of inflation not seen in
40 years currently ravaging workers’ wages, they resent being robbed of the money they earn. That’s why, in a free country that understands and appreciates the free market, we insulate the central bank from political passions by making it independent and enforcing that independence: so it can fight inflation hard when the need arises.
But legal independence can never shield a government’s central bankers imperviously. As Milton Friedman noted in 1962, in perhaps the most influential
essay promoting central bank independence, “Even when central banks have supposedly been fully independent, they have exercised their independence only so long as there has been no real conflict between them and the rest of the government.”
The U.S. Federal Reserve currently is tasked with an objective that its chairman and policymakers know to be impossible in today’s Washington. Even potent increases in the federal funds’ short-term bank-to-bank interest rate of 75 or even 100 basis points won’t bring it up to parity with the current 8.5 percent inflation rate. Chairman Jerome Powell and his Federal Open Market Committee (FOMC) colleagues won’t be receiving kudos for conquering ever-increasing prices of energy and consumer goods at any time in the foreseeable future, if ever.
But there’s a great risk that they'll be leveled with the blame for the recession that has already begun, especially if it proves to be severe.
Paul Tucker of Harvard’s Kennedy School of Government and author of “Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State,” has
said that “while an arm’s length monetary authority, insulated from day-to-day politics, can help underpin a constitutional system of government, unelected central bankers surely need to be constrained by legislation.”
Since 1977, federal law, with the intention of constraining, has tried to have its cake and eat it too. Congress has
charged the Fed with a mission to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” The law might as well demand that the U.S. central bank wave its wand and conjure up full employment without inflation perpetually, out into the far future–along with a winning Powerball ticket for each of the nation’s citizens while it’s at it.
This isn’t to say that pushing back against inflation with some level of effectiveness isn’t possible for the Fed today, but not when internally, there exists no united front. The Federal Reserve is divided. For instance, St. Louis Federal Reserve Bank President James Bullard just
told The Wall Street Journal that he wants another 75-basis-point increase at next month’s FOMC meeting “to continue to get the policy rate higher and into restrictive territory.”
He made it clear that he isn’t worried about a recession at all. But according to Minneapolis Fed Bank President Neel Kashkari, “as we continue to raise rates, as we continue to raise costs, so to speak, of borrowing across the economy, it should be putting, tapping the brakes on the U.S. economy, and that makes it more likely that we would end up in a recession.”
The
minutes of July’s FOMC meeting found members ruminating that “it likely would become appropriate at some point to slow the pace of policy rate increases.” And so, even with inflation at 1970s levels, the Fed is, in not so many words, apologizing for the BBs it’s shooting at the problem, which won’t come anywhere close to killing inflation.
They fear being blamed for a recession that’s the fault of President Joe Biden and a Democratic-dominated, big-spending Congress—who will no doubt be happy to have a scapegoat nearby and be the first to point fingers at the central bankers. The late, cigar-chomping, larger-than-life-at 6-feet-7-inches-tall Paul Volcker, who actually did get serious about conquering inflation in the early 1980s—at one point in 1981 setting the fed funds rate at 20 percent—was scorned and pilloried while in power. But today’s Fed policymakers should consider that he was later bestowed with honorary degrees from more than 20 centers of higher learning, including Dartmouth, Georgetown, Notre Dame, New York University, and Princeton.
Because of our politically correct, union-dominated public school system, few U.S. workers understand even the basics of economics or how harmonious economic freedom is with the realities of human nature. In the months to come, they may join in excoriating a Fed that at least partly does its job; they might even foolishly demand “power to the people” in the form of legislative reform that politicizes the Fed. But their lives will be much happier when the harsh medicine does its curing.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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