Arnold Kling  

Boo Alan Blinder

Labor Day is Not Union Day... The Incredible Shrinking Priva...

He writes,

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.

Thanks to Mark Thoma for the pointer.

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.

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COMMENTS (3 to date)
Radford Neal writes:

One thing I've wondered about regarding this "audit" business is whether the Fed is currently audited somehow or other to a sufficient extent to prevent outright embezzlement. It moves around trillions of dollars. Can one be confident that a few hundred billion aren't diverted into someone's pocket?

Don the libertarian Democrat writes:

I don't believe in an Independent Fed, assuming that it would actually be possible to have one. I follow the essay by Milton Friedman which I find to be unacceptable to most people:

"Should There Be An Independent Monetary Authority?"

However, just as in Supreme Court decisions, I no longer expect anything but a mishmash of decisions, some of which I like, and some of which I don't.

I feel the same about the Fed. Since I like what Bernanke has been doing since Lehman, and would rather not have Congress muck things up, I'm currently for an Independent Fed. Like Burke, I don't let theory get in the way of prudent politics.

Amaturus writes:

What's missing from available information to make a "mark-to-market" balance sheet? I ask that honestly.

The Fed's operations are intensively audited in accordance with Section 11B of the Federal Reserve Act. A primary concern mentioned on is the fact that policy decisions are not audited, although the FOMC minutes are available pursuant to FOIA. There are some specific pieces of information that haven't been made available to the public, but I still don't see how the Fed is "far from transparent", especially if compared to true government agencies. How many audits of the Department of Defense has failed to find the millions that go missing? And they have guns. Also note that discusses inflation caused by the Fed as a major reason for this audit. Are they unjustified in doing so as well?

All in all, I think Paul's camp should be wary of the law of unintended consequences. If your true end goal is the abolition of the Fed, you may think that these audits would lead to it, but in reality you're letting Congress put its foot in the door. I don't think it's unreasonable to think that allowing more government control is a slippery slope. I'm not sure why you think this is a disingenuous objection, because no matter what you think the purpose of the audit is, the text of the H.R. 1207 makes no mention of any of the points given. It's vague. Dangerously vague.

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