an audit of its monetary policies by the GAO -- which, remember, works for Congress -- could easily develop into something quite dangerous. Here is a not-so-unlikely hypothetical: sometime in 2010, the Fed, wanting to avoid inflation, will likely begin to abandon the hyper-expansionary monetary policy it adopted during the recent crisis as a way to stave off a depression. As it does so, interest rates will start rising even as unemployment remains high. Predictably, Congress, being more closely attuned to public opinion, will be unhappy with this situation.
Blinder is being totally disingenuous. The purpose of an audit of the Fed is to try to figure out whether it was taking huge taxpayer losses and subsidizing banks with its special lending facilities. It is not about future inflation policy. The politics of inflation are what they are and have nothing to do with an audit. (I think it's fair to say that inflation would be very unpopular politically. Moreover, if your fear is that there will be pressure to inflate, then you ought to be a bit more concerned with deficits, no?)
Meanwhile, the Fed is far from transparent. Has anyone ever published a mark-to-market balance sheet of the Fed? Does anyone even have the information that would make it possible to do so?
A telling quote from Blinder:
I first argued in the November/December 1997 issue of Foreign Affairs that the U.S. government was placing too many decisions in the political realm and too few in the technocratic one. In the 12 years since, I have become increasingly convinced of this.
So my view of P's as anti-democratic elitists is not mere fantasy. But the L solution is not voice--it's exit.