A conference was held at the American Enterprise Institute on March 20, 2014 on the question: Is the Federal Reserve a philosopher king or servant of the treasury? Alex Pollock, a frequent contributor to Law & Liberty and participant in the AEI discussion, offers here in condensed form the arguments and the instructive history presented.
The Cato Journal’s Spring/Summer 2012 volume on “Monetary Reform in the Wake of Crisis” is not to be missed. Contributors include Allan Meltzer, John Allison, James Grant, George Selgin, and Judy Shelton, among others. You could think that so much has transpired since this went to print, more QE, more EU summits, more “Fed twists” that its value has decreased. Not so, however.
For example, Allan Meltzer, author of the magisterial history of the Fed entitled A History of the Federal Reserve, has an essay “Federal Reserve Policy in the Great Recession” that is chock full with insight on the Fed’s behavior of recent years. The essay also limns a way forward to a rule-driven, discretion-limited Fed. The main theme is that “Overresponse to short-run events and neglect of longer-term consequences of its actions is one of the main errors that the Federal Reserve makes repeatedly.” Meltzer charges that the Fed in the Great Recession has engaged in credit allocation and distorted credit markets, incurred an unprecedented volume of long-term assets, evaded the dual-term mandate, engaged in debt management, among other acts. In so doing, the Fed has done things “that are not the responsibility of a central bank.”