A superb post by James A. Dorn of Cato Institute. In Dec 13, Fed celebrates its 100th anniversary. Fed celebrates its 100th anniversary in Dec-13 and the post reflects on both Fed’s history and future:
This year marks the 100th anniversary of the Federal Reserve System. There will be many events commemorating the signing of the Federal Reserve Act in December 1913. Many of those events will be occasions for celebrations by Fed officials and staff, but should the public celebrate a century of central banking?
At the annual meeting of the American Economic Association in San Diego earlier this month, Harvard economist Kenneth Rogoff told a large audience that the Fed has been a “remarkably successful institution.” During Q & A, Mark Skousen, author of The Making of Modern Economics, asked why the Fed failed to predict the financial crisis and the Great Recession—but Rogoff failed to answer. Later in that session, Donald Kohn, former vice chairman of the Fed, acknowledged that the Fed had made mistakes and should exercise humility. Yet, he is a firm believer in discretion rather than rules.
In another session, Allan H. Meltzer, the world’s leading authority on the Federal Reserve, and a long-time proponent of a rules-based approach to monetary policy, was highly critical of the Fed’s expansion of its power since 2007 under Ben Bernanke. “No group,” said Meltzer, “should have unrestrained power that the Fed has taken for itself.”
He supports ending the Fed and creating alternatives to current fiat money:
With the 100th anniversary of the Fed, this year is an appropriate one to reflect on the Fed’s performance and, more important, to consider alternatives to discretionary government fiat money. Congress should establish a National Monetary Commission to investigate these issues and think about how to exit the Fed, not just exit current monetary policy. When the next crisis occurs, as it surely will, the U.S. must be ready with alternatives to the current fiat money regime. The public should not let central bankers monopolize that debate.
The late Nobel economist James Buchanan, a pioneer in public choice and constitutional political economy, opposed “unconstrained discretionary monopoly” and urged economists and policymakers to consider “alternative monetary constitutional regimes.” This year would be a good time to heed his advice. And a good place to start would be with Richard H. Timberlake’s forthcoming book, Constitutional Money: A Review of the Supreme Court’s Monetary Decisions.
This thinking applies to most central banks and monetary policy in general.
What times…And we thought central banks had all the tools in the world to end the crisis. Now that Fed has tried most of the tools, it is facing scathing criticism for its discretionary policies..